Is it Time to Drop Your Traditional Health Insurance Policy and Get a Health Savings Account?

With the cost of taking care of our aging seniors, increasing medical regulations, never-ending paperwork and fewer and fewer doctors, health care costs are soaring in the United States. America now has more than 40 million uninsured individuals living within its borders and it doesn't appear that number will be decreasing anytime soon. Many people are finding that they simply cannot afford their traditional health insurance policy anymore and now have to find less expensive alternatives to take care of their health needs.

One of these alternatives that many young people are switching to is called the health savings account. You can essentially put money into a savings account and use that money to pay your medical bills. The beauty is that this money can come out of your pay-check before you ever pay taxes on it, so 100% of your income that you put toward into your health savings account goes there, rather than 1/3^rd of that money being sent away to the government. You then use that account to pay for your medical bills out of.

The health savings account is great for taking care of small issues like the occasional flu or vaccinations, but it doesn't take care of larger expenses such as major accidents or prolonged illness. This is where a high-deductible health plan comes in. It's an inexpensive form of insurance that takes care of all of the major medical expenses that you'll have. Let's say you need a heart operation that will cost $40,000. Your HSA might only have enough to take care of the first $5,000 of that, and after that your high-deductible health plan (HDHP) will kick in and pay 100% of the expenses after that.

A health savings account makes sense for individuals who are younger and in relatively good health. So if you're in your twenties, thirties, or early forties and have had no major health problems to speak of, a health savings account mixed with a high-deductible health plan can get a great way to cut down on your medical expenses. Since you aren't going to a doctor on a regular basis, only when you're really ill, you save a lot of money on the visits to the doctor that you don't make.

If you or one of your dependents has frequent medical problems, chances are you should try to get traditional health insurance rather than a health savings account. You'll be in a doctor's office quite a bit and eat through the funds in your health savings account well before the end of the year. Since traditional health insurance pays a larger percentage of these smaller trips than HSA's do, a traditional insurance plan usually is a better deal in these situations.

If you're considering opening an HSA, be very careful where you get your policy at. Some of the companies have fees as high as $300 to open a health savings account. You might put in $1000 for the year, but only end up with $700 in there. Make sure you find a low cost provider for your health savings account by comparison shopping online.