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HSA: Mysteries of The Health Savings Account

Understanding Health Savings Accounts…

What the dickins is a health Savings Account? Since many people still use low deductible HMO’s and PPOs, there has been no need to know what an HSA is. However, as more and more companies try to control health insurance costs  – Whole Foods and Target being two large corporations that enlist the employees to help save on costs – an increasing number of people will learn about this useful tax planning tool.

First off, people may see HSA and think FSA – Flexible Spending Account – and wonder if they’re similar. Both can be used for health care expenses (and some FSA’s other expenses) but the purpose for each is much different and that critical point with FSAs – losing what you don’t use at year end – doesn’t apply to HSAs.

Understanding Health Savings Accounts -What is the functionality and purpose of an HSA?

An HSA is a supplement to a health insurance plan with high deductibles (HDHP – guess what this acronym stands for).  The basic
idea is, instead of paying higher premiums to have super low deductibles on co pays, prescriptions, visits and services, is to have higher deductibles, and have a much lower insurance premium. I know I know, high deductibles are bad right?

It is true that the mathematically-challenged US population has trouble with this idea in general. Preferring to get robbed by their health insurance company in order to keep co-pays low.  However, the truth can be much different. Just like all-inclusive vacation packages can often be put together for cheaper (if you’re not lazy), all inclusive health insurance can also be put together cheaper.

It depends on your usage. The idea is, you pay lower premiums, then cover most routine stuff with cash. And here’s where the HSA comes in. The HSA can be pre-tax money which can be used for these routine costs. And here is where the benefits can kick in:

If you are a smart shopper, you can pay much less for medical services by negotiating. One quick example – a recent conversation at a doctor’s office revealed a 200% (TWO HUNDRED) difference in the price that they charge insurance companies for a visit vs the cash price. Oh and did I mention that if you are a good penny-pincher and don’t spend all the money, accumulated monies in an HSA can be used to supplement retirement when you reach age 65?

Summary

Certainly this depends case by case but significant savings can be had by the person who pays a much lower health insurance premium, and pays for the routine expenses at a discounted cash price.

If you like to save money, pinch pennies and squeeze a nickel so hard you make the buffalo scream, this might work for you. If you run a company and want to control costs, this might help too (or using the HRA which can be more favorable to companies).

Call us (781-393-0021) or email us  if you would like to explore the benefits to using a Health Savings Account to save money. We are located just outside Boston in Medford, but also serve Western and central MA, New England, Florida and the San Francisco Bay Area including Marin County.

Oh and please consult with an advisor before making financial decisions.

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