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Five reasons why you should choose a HSA Health Insurance Plan

May 5th, 2014

Numbers And Finance

Credit: www.SeniorLiving.Org via Flickr under Creative Commons

What is an HSA ?

An HSA, which stands for Health Savings Account, is a sort of tax free savings account whose contents you can only use toward covering health care costs. HSA Health Insurance Plans were created back in 2003 by former President George W. Bush’s Medicare Prescription Drug, Improvement, and Modernization Act.

They’re actually similar in many ways to the popular 401k retirement plan. The contributions to and gains from HSA  are sheltered from taxes, and do not incur a tax penalty as long as they are used for approved medical costs.

However an HSA cannot exist on its own, it needs to be paired up with an HSA health insurance plan. First you would enroll in an HSA health insurance plan then you would sign up to open your HSA that links up to your plan. You don’t have to settle for the default HSA your insurer provides either. There are many different HSA providers out there that offer various benefits and perks, just like there are many 401k providers.

If you’re enrolling in an HSA health insurance plan through your workplace, typically your employer will pick the HSA provider and set up automatic contributions for you from your paycheck, which in some cases they actually match.

Ok so that all sounds very well and good, but what is the real benefit to signing up for an HSA plan? We’ve found five very compelling reasons for you below:

1. HSA health insurance plans typically have the lowest monthly premiums

Out of all the different health insurance options available for Americans these days, high deductible HSA-eligible plans typically have the cheapest monthly premiums. The reason they’re so cheaper per month (as you may have guessed) is that they have the biggest deductibles out there.

For those who may not know, a deductible is the amount of money you have to pay out of your own pocket for health care before your health insurance policy begins covering the costs.

Because of that HSA-eligible plans make a lot of sense if you don’t plan on seeing the doctor very often and really only want your health insurance there for emergencies.

2. An HSA health insurance plan makes sense if you’re young and healthy

If you’re a young, generally healthy person, an HSA-eligible plan might make the most sense for you. The healthier you are, the less you’ll need to use your health insurance, so it wouldn’t make sense to pay more money every month for a plan with a lower deductible if you only see the doctor once or twice per year.

Also, as long as your income is stable you can continue making contributions to your HSA account when you’re healthy for the future when you might not be as healthy. Which leads me to our next reason…

3. Having an HSA allows you to invest in your current health

As alluded to above having an HSA allows your to invest your current good health towards the future when you might not be as healthy. HSAs all have an annual maximum contribution cap. For example in 2014 the maximum you can contribute to your HSA tax free as an individual is $3,300, and in 2015 it will be $3,350.

However whatever money you don’t spend in a given year rolls over to the next year. So a few years of good health and high contributions could leave you with a tidy sum in your HSA which could be the difference between bankruptcy in the event of a medical emergency.

4. You can actually invest your HSA money when you’re not using it

Just like a 401k, depending on your HSA provider, you can actually take the money in your HSA account and invest it in the market. How aggressive and risky you’d like to be with it depends on the options given to you by your HSA provider. But if you’re a market savvy kind of person you could use this tactic to substantially grow your account balance.

5. An HSA plan can help you keep your healthy habits

The thing about an HSA plan is that you want to stay away from the doctor’s office as much as you can and save your HSA funds for the really pressing medical issues and/or emergencies. Studies have shown, and economists believe that the effect of HSA-eligible plans on Americans’ health care decisions can help create and further reinforce preventative health habits that keep you out of the doctors office.