Health Savings Accounts (HSAs)

Traditional health insurance is the type of health insurance that most people carry. Traditional insurance includes monthly premiums paid by yourself, your employer, or, in most cases, both. To deter frequent doctor and hospital visits, you are also required to pay a copay of $15 or more per visit. Annually, it may cost you $6000 pre-tax ($500 per month * 12 months) for the monthly premiums, plus your co-pays.

Health savings accounts are a relatively new form of health insurance. Like traditional insurance, you pay a monthly premium (mine is $80 per month) into a high-deductible health plan (HDHP). You also have a set amount, pre-tax, withdrawn from your paycheck and put into a special savings account. Much like a flexible spending account (FSA), you can use the money in this account to pay for office visits, prescription drugs and other qualifying expenses.

Advantages and disadvantages of HSAs are below.

Advantages for employees:

• Money not spent within the year carries over to the next year
• You only have to worry about expenses up to the limits defined by your HDHP (for example, my limit is $3000 for my family, so if I reach my limit of $3000 in September, my HDHP pays the rest of my qualifying expenses the rest of the year)
• If you add more money to the HSA every year than you spend, when you retire you will have pre-tax money already set aside to pay for health insurance and health-related costs during retirement
• You lean to shop around for the best care and cheapest health-related services
  

Disadvantages for employees:

• At the beginning of the year, you could pay more out of pocket than you have available to withdraw from your HSA
• The full amount for office visits and prescription drugs must sometimes be paid, whether it is directly from the HSA or out of pocket and then reimbursed at a later date
• If you prefer or can only afford the $15 office visit, the HSA is not for you
  

Advantages for employers:

• It's cheaper for employers to sponsor HSAs with HDHPs. When I switched to an HSA in January of 2008, my employer's contribution to my health insurance dropped hundreds of dollars a month.

Advantages for insurance companies:

• Most employees won't meet their deductible, which means far fewer claims that must be paid to health care providers or drug companies (the cost of care is on the shoulders of the employee, up to their HDHP limits).

If given the option to choose between traditional and an HSA, consider your options. If you have an HSA, post your comments below.