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With the cost of health insurance on the rise, many employers are starting to offer health savings accounts (HSAs). While HSAs offer a host of important benefits, they’re also a bit different than what you might be used to with a more traditional health plan.
1. You need a high deductible health plan first.
HSAs work hand-in-hand with high deductible health plans (HDHP). A HDHP is simply a health insurance plan that has a lower premium and a higher deductible than a more traditional plan.
2. A look at the costs.
According to human resources firm Towers Watson, HDHP premiums for individuals are typically 10-40% lower than traditional plans.
However, according to a 2011 survey by the Kaiser Family Foundation, workers have to pay an average deductible of $1,908, compared with traditional health plans, which, on average, have deductibles well under $1,000. Whatever your deductible is, you’ll have to foot the bill for all your medical expenses (including prescriptions) up to that amount.
Besides the deductible, you may also have to pay some other out-of-pocket expenses in the form of a co-insurance percentage. For instance, your insurance company may cover 80% of a medical expense; you’d then be responsible for the remaining 20%.
3. How you’ll pay for these costs.
To cover your medical expenses, you can contribute money — on a pre-tax basis — into your HSA. In 2012, individuals can contribute up to $3,100 and families can contribute up to $6,250. You can withdraw this money tax-free to pay your medical bills. Any money you don’t use will roll over to the next year.
4. There is a limit to what you have to pay.
With most HDHPs, the amount of money you have to pay is not unlimited; there is an “out-of-pocket” maximum amount. For instance, if your plan has an out-of-pocket maximum of $5,500, once you’ve paid that amount, the insurance company pays for everything else afterwards.
5. You’ll need to do the math.
Many people save money with HSAs. For instance, young, healthy individuals who don’t use a lot of medical care can save; likewise if you have a costly medical condition and go to the doctor frequently, you may be able to save because you pay nothing after you hit your plan’s out-of-pocket maximum. However, to determine whether an HSA is right for you, you should do the math on all the numbers.
This information is advisory in nature. No liability is assumed by reason of the information in this document.
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