How a Health Savings Account Can Help You: Ideal for Skyrocketing Insurance Premiums

You open your mail, expecting the usual bills, junk, etc. There's a letter from your health insurance company. Uh oh....it's that time again: the annual increase. You've come to expect and dread this, but when you open the envelope, you almost pass out. Your premiums have gone up $400 per month. This is what happened to me. My premiums, which I pay on my own, just went from $515 a month to $925 a month. That's how much I pay for my rent.

Who benefits from a Health Saving Account (HSA)?

The one who benefits the most, of course, is the health insurance company and the bank that holds your account. But an HSA can sometimes be the difference between having health insurance and joining the vast numbers of people who don't.

Say you're in your own business-writer, artist, pet sitter, substitute teacher-anything in which you have to pay your health insurance on your own because you don't work for a company that gives you benefits. Or you may be divorced and are no longer carried on your ex's health insurance policy. Or-what makes the most sense in this country-you may have lost your job which means you've lost your health insurance and can no longer afford COBRA ( a health insurance program which entitles the newly unemployed to keep their health insurance at a price no one could afford-even if they still had a job).

How it Works

The first part of the HSA is called a High Deductible Major Medical Plan. This most closely resembles what you're used to as health insurance, except that-as the name implies-you pay a large deductible upfront before your insurance covers your plans.

For example, my deductible is $2,000 for the year with my new plan. All claims-doctor visits, tests, the cost of prescription drugs, will go towards that $2,000. In other words, I will pay for everything until I hit the $2,000 mark. (I do take a few medications so considering how much they cost, I will probably hit the $2,000 mark next weekend.)

At the same time, I will be paying a monthly premium of $697.12 per month. (I wonder where that 12 cents comes in. Don't you?) After I meet the $2,000 deductible, my insurance should-and I say should-cover 100 percent of my claims. What that really means, of course, is that it will cover 100 percent of what it decides to cover-not 100 percent of what I need. However, none of us are in a negotiating situation with the insurance companies now-not even Hillary Clinton no matter how many tears she sheds.

The good news is that after that magic $2,000, I won't have to pay any co-pays for regular visits, specialty visits, hospitalization or prescription drugs.

Now here's where the HSA comes in. If I want-and this is purely optional-I can take $2000 out of my bank account and place it in the HSA, which is held by some bank; I don't know which one at this point.

That $2000, which I can put in all at once or through smaller contributions, will be tax deductible-just like an IRA-and will grow tax deferred interest. I can only use this HSA toward paying my deductible. So if I go to the doctor for 11 minutes to check something out deadly and it costs $300, that $300 will come out of my HSA.

The advantage of this HSA is that you gain some interest on the money you are most likely to spend anyway, and it is tax deferrable. If by some miracle you have some money left over in your HSA by the end of your enrollment year, the money rolls over into your account for next year.

And in the event you quit the insurance part of the plan, you still keep the HSA and can use it with another plan.

The cost of the health insurance premiums is still a criminal act, in my opinion. But, at least, the Health Savings Account takes a little bit of a bite out of the crime.