August 31st, 2006 by Maribeth Neelis
Since January 2004, scholars, experts and politicos alike have disputed the merits of the Health Savings Account. The concept of allowing individuals to opt for an HSA in lieu of a traditional managed care plan was born out of the Medicare Prescription Drug, Improvement and Modernization Act signed by President Bush in late 2003.
An HSA is like a tax-sheltered savings account. You even get a debit card. You and your employer (if you have one) can continue to deposit money up to the maximum. If you don’t deplete it this year, the remaining money rolls over into the next, growing at a tax-favored rate. What is left upon retirement you can cash in and upgrade to a bigger condo in Florida.
To be eligible for an HSA, you must have a qualified High Deductible Health Plan (HDHP,) which is an inexpensive, health-insurance policy with much higher out-of-pocket costs. Although the deductible includes all your medical expenses, the plan can cover preventative care, such as immunizations, pre-natal care and physicals. All other expenses, including prescriptions, are paid using the funds in your Health Savings Account. Each year, you can contribute to your HSA up to the deductible amount of your HDHP.
Proponents of the HSA contend it makes the insured more accountable for their medical decisions–maybe you’ll see a doctor fewer times if the financial burden is yours. It reasons that if less people seek unneeded medical care, the overall cost of health care will decrease. However, critics disagree, saying this type of plan discourages people from seeking needed medical care, which could lead to chronic conditions that are more expensive to treat, consequently, driving up the cost of health care.
Whether HSAs will lower overall health care costs remains to be seen–their value for some people does not. Portable, flexible and, if you rarely seek medical care, affordable, an HSA is a better choice for some. An HSA is like an IRA, providing a place for you to deposit non-taxable money you can collect when you retire. And you’ll likely save money on the HDHP because your health-insurance premiums will be much lower.
However, if you have a chronic condition that requires frequent medical care and numerous prescriptions, an HSA could get pretty expensive. You’re required to pay those costs until you reach the deductible, which can be as high as $1,050 for an individual and $2,100 for a family.
HSAs yes or no? It’s a personal choice that will likely affect many facets of your life, so bone up on the pros and cons before making the switch from a standard health insurance plan to an HSA.