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Tired of high premiums? A high deductible plan may work for you.
When coupled with a health savings account, a high deductible plan helps you save premiums and taxes - very cost efficient!

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How an HSA Insurance Plan Works

In a nutshell. An HSA plan combines TWO money-saving elements:

  1. An IRS-qualified high deductible health insurance plan (HDHP), and
  2. A special tax-sheltered savings account. This is the actual HSA, or Health Savings Account. It is very similar to a traditional IRA (Individual Retirement Account).

You pay for routine medical expenses with tax-free dollars accumulated in the HSA account. What you don't use in medical expenses is yours to keep. If you encounter unforseen, larger medical expenses, the high deductible insurance plan should cover most or all of those expenses.

The "Two Insurance Companies" Concept.

The best way to think about a health savings account plan is to envision TWO insurance companies working in conjunction to insure your healthcare. You own the smaller insurance company which primarily is funded by contributions to your health savings account - this is a form of self-insurance but you only are on the hook for the smaller, routine medical expenses. You purchase an insurance policy from a reputable, highly rated insurer to cover larger, unanticipated medical expenses, subject to a high deductible (this plan design must comply with IRS Rules).

Self-insurance - for smaller, routine expenses. Because you are responsible for routine medical bills under the deductible amount, you effectively act as the insurance company for the smaller expenses. Stated differently, you are self-insuring the routine medical expenses. Contributions to your HSA savings account serve as "premiums" you pay to yourself to fund your self-insurance program, and the Government gives you a substantial tax-break for doing this. Just like an IRA account, every dollar you contribute to your HSA savings account is 100% tax-deductible. And just like an IRA, all funds in the account always are yours to keep - what you don't use to pay medical bills each year "rolls over" from year to year and actually goes to supplement your retirement at age 65.

Traditional insurance - for the "big stuff." A traditional insurance company assumes the risk of expenses above and beyond a "high" deductible you select. You pay premiums to the insurance company to assume the larger risks over the deductible amount you choose. The larger the deductible, the lower these premiums will be. Just like with any other insurance policy you own, your premiums are paid direct to the insurance company - they are not related to your HSA savings account in any way. If you are self-employed, premiums may be tax-deductible.

Substantial Savings, Both Short-term and Long-term

You'll save up-front in 2 ways:

  1. Health insurance premiums are lower with a high deductible plan, compared to a traditional co-pay plan. Many of our clients save an average of 40% or more compared to traditional coverage. Premium savings can be substantial or more moderate, but you'll always save.
  2. Because every dollar deposited into the HSA savings account is tax-deductible, you'll cut your Federal income taxes just by making deposits into your savings account. This is identical to the way taxes are reduced wtih a traditional IRA. But even better than an IRA, you can use tax-dollars you save with an HSA to pay routine medical expenses! It's like having Uncle Sam subsidizing your initial medical expenses every year!

Plus - additional long-term savings:

  1. Earnings accumulated on the savings funds are tax-deferred. (In addition to a regular savings account, you'll have numerous investment options if you are so inclined.)
  2. The HSA account itself effectively becomes an IRA-type of retirement account at age 65. the more you save, the more money you'll have to help fund your retirement.

What's the catch?

Truly, there is no "catch" to an HSA-health savings account plan, but there are some rules to keep in mind. The main thing to know is that you have to play by the rules.

For one thing, there are limits on how much you can contribute to your tax-deductible account each tax year. Otherwise, people would abuse the privilege. For another thing, you can only use funds from the HSA account for qualified medical expenses in order to keep those funds tax-free. If you use HSA funds for non-qualified expenses, a tax penalty is imposed and the amount you spent for non-medical expenses is included in ordinary income for that tax year.

Here are some Quick Links for additional info:

Learn more about annual contribution limits, qualified expenses, etc.

More about the required IRS-qualified high deductible plan design

How - and when - to open the actual HSA savings account

Another important thing to keep in mind is that in most states, you must be insurable to get a new high deductible health plan issued, at least on an individual (non-employer/group) basis. If you have any questions about your insurability, my suggestion is to check first with a duly licensed and experienced health insurance broker (like me). It is a waste of time to try and figure out whether this is a "good deal" only to get declined by an insurance company after you apply. I don't want that to happen to you, so feel free to call me at the number listed at the top of this page if you have any questions or concerns about insurability.

How to Get Started?

Easy. Get some quotes. None of these details matter much if you think the premiums are not low enough, or if you are not insurable. Use our easy form - it only takes about 3 minutes. Or better yet, call my office direct at 702.425.5250. I'll personally work up quotes for you and help you understand the advantages of establishing an HSA plan.

Thanks for visiting our award winning HSA site - online since 1999!

C. Dean Richard, JD, MSBA
Licensed Agent/Broker since 1980