New Health Savings Account Plans Offer Three Times More Than Health Insurance

Health Savings Account Plans have been gaining popularity. This insurance option is unique type of plan that combines low-cost premiums with tax advantages. One feature of HSA Plans is that savings set aside for health care expenses can be used to reduce taxable income.

For starters, it's not just health insurance. It's certain health plans working in combination with certain forms of saving accounts. There are strict rules for which health insurance can be used to open a Health Savings Account (HSA). The health plans all have deductibles between $1,200 and $5,950 for individual coverage. Family plans have deductibles between $2,400 and $11,900.

Health Savings Account Plans Keep Premiums Low

The reason for the growing popularity of HSA Plans may well be that premiums are often lower for these plans than for health insurance that doesn't include a deductible.

Generally, premiums drop as the deductible increases and that has contributed to a popular strategy for getting health insurance at a lower cost. Many people switch from a plan with a higher premium and no deductible to a policy with a relatively small deductible that costs less.

They deposit the difference most months and as the savings add up, they move up to another plan with a higher deductible to get even lower premiums. With enough in their HSA to cover their deductible, they figure it's safe to get a plan with a bigger deductible because they have the money to cover it.

As their savings grow, they continually switch to plans with lower premiums and higher deductibles. It's a cycle that's savings some people a lot of money.

Health Savings Accounts Give People More Earnings

It helps that HSA earnings are not taxed as long as the money stays in the account. Withdrawals to pay for health care that the government deems acceptable are still not taxed. Fortunately, the list of what you can spend HSA funds on is pretty inclusive, ranging from acupuncture to transportation and lodging that's necessary for long-distance treatment.

How you invest HSA funds is up to you. More financial institutions have jumped onboard as demand for HSA Plans has grown. You can invest HSA funds in bonds, mutual funds, savings accounts that pay interest or stocks.

An HSA is much more attractive to employees than flexible savings accounts, which can also be used to cover medical expenses. That's because employees can't retain flexible spending account money that is still in the account at the end of the year. HSA money rolls over every year to keep on growing with tax-free earnings.

You can spend your HSA on health care for your family, too, even if they are not included on your high-deductible health insurance plan.

Once you reach 65, you can use HSA funds for any purpose without having to worry about a 20-percent penalty fee for buying something that's not considered qualified health care. You can continue to pay your long-term care policy premiums or buy a new car with your HSA. Of course, you'll have to pay taxes on HSA earnings that you spend on that car or anything else other than health care.

HSA Plans Help To Lower Taxable Income

Next year, individuals will be able to deposit up to $3,100 and families may contribute up to $6,250. People who are 55 or older can make an additional $1,000 "catch-up contribution" next year just like then can for 2011.

The totals HSA contribution can be taken as a tax deduction even without itemizing deductions. It's treated as an "above the line deduction" to reduce your taxable income and it helps to trim down both federal and state taxes in the vast majority of states.

While HSA Plans can cost more than some high-deductible plans by the time you're in your 50s, the added benefits of tax reductions and tax-free earnings may be worth it. For younger people, the premiums are often among the lowest available.


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By Wiley Long - President, HSA for America - Professional advisors offering personal assistance on Health Savings Accounts and HSA Insurance plans.