A health savings plan, or HSA plan, is a medical payment plan that lets individuals set aside money for qualified healthcare expenses. HSAs give individuals, rather than their employers, control over their accounts.
Health savings accounts (HSAs) are tax-exempt plans that are designed to cover the cost of certain medical expenses. HSAs have several benefits, including that funds in the accounts will accrue tax-free over the course of the loan's lifetime. These types of accounts alleviate participants from having to pay tax penalties for withdrawals, which makes them more appealing options for those who need frequent medical care. Another major advantage of HSA accounts is that any unused money in them can be rolled over, tax free, for use in subsequent years. HSAs issued through an employer will normally be added to a retirement plan, such as a 401(k), when the employee leaves the company or retires.
HSA Benefits A major incentive for people to get an HSA plan is the plans are controlled by the plan holder rather than by an employer or other insurance provider. This means that when people switch jobs, they take their insurance plans with them. Even when they switch employers, there are no penalties associated with moving from one job to another. HSAs may also be eligible for earning interest, which means they'll grow automatically over time, even if no additional funds are added to them. HSAs can be opened through a traditional lending institution, such as a bank.
HSA Plans vs. Traditional Healthcare Plans In addition to using HSAs alone, some people choose to combine them with traditional health plans. This can only be accomplished with a qualified health plan that's pre-approved for consolidation with an HSA. These types of insurance plans generally have a higher deductible when combined with an HSA, but the combination of the two plans provides more comprehensive coverage for healthcare. The benefit of a plan with a higher deductible is the monthly premium is lower, which means people with these plans have lower expenses for healthcare each month. However, they are subject to higher out-of-pocket fees for certain situations, such as emergency room visits, hospital stays, surgeries and visits to some specialists.
Considerations in Choosing a Plan While HSA plans have some distinct benefits, they are better suited for some segments of the population than others. When considering whether or not to get a traditional healthcare plan or an HSA, people should consider what medical conditions they have and how often they generally go to the doctor's office. Generally, HSAs make the most sense for people who are healthy and ordinarily require minimal healthcare assistance, say authors at the Mayo Clinic. HSAs are also an attractive choice of healthcare for people who are approaching the age of retirement, as any money left in them can be taken out to supplement a retirement income. Once people retire, they can use the money in their HSA accounts for any purpose, even if it's not related to healthcare expense.
Despite these advantages, people should note there is a limited list of healthcare expenses that HSA accounts cover. The list, which is maintained by the Internal Revenue Service (IRS), includes vision care, dental care services and coverage for prescription drugs. HSAs are not ideal for people with certain pre-existing medical conditions not covered by the HSA, as care for those conditions may be expensive without additional insurance coverage.