Health Savings Accounts (2/1/2006)
Source: CNN Money

President Bush talked about health savings accounts as a way to make health care more affordable in his State of the Union address yesterday.

But are health savings accounts really for you? 

1. Know the terms

A Health Savings Account (HSA) is used in conjunction with a high deductible health plan. This combination can replace a traditional health insurance plan offered by your company. Your employer may offer a high deductible plan that will cover your medical expenses once you hit the deductible of at least $1,050 for an individual or $2,100 for a family.


2. Who it helps

Health Savings Accounts should appeal to you if you are healthy and don't rack up many medical bills. (The average person spends less than $700 for health care annually, according to Hewitt Associates.)

HSAs can also provide a great tax benefit because contributions can be deducted from your federal tax return. And many states also allow the deduction from state income taxes.

If you also tend to change jobs frequently, you also may benefit from HSA's. Health Savings Account funds go with you so and can help pay COBRA fees if you don't have a job lined up. And, unlike traditional health care plans, you can use your HSA Funds to pay for chiropractic care, a nutritionist or acupuncture work.

"If you're looking to accumulate funds for retirement medical expenses, these are great plans because your investment earnings are not taxed and you can roll them over," says Michell Santiago of Mercer Human Resources Consulting.

3. Who may not benefit

Health Savings Accounts may be devastating to people who are older, poorer or sicker. That's because these accounts will essentially pull the healthy and wealthy folks out of the traditional insurance risk pool, according to FamiliesUSA.

This will leave higher risk people facing higher traditional insurance costs over time. Other people may be discouraged from getting preventative treatment simply because of the high deductible.

"4. Get the policy lowdown

Make sure you read up on your high deductible health care policy. And look at what is covered once the deductible is met. Like any health care plan, you may be surprised at what's not covered. Some plans don't cover medication, says Bob Hurley of ehealthinsurance.com.

Also keep an eye on fees associated with HSAs. Health Saving Accounts come with a variety of fees -- fees when you set them up, fees to maintain the account, transaction fees, and in some cases, closing fees.

5. Be prepared for sticker shock

Buying healthcare is not like buying a television set. You may not be aware of all the prices that doctors charge. People are so used to dealing with their $15 or $20 co-pays, says Gary Claxton of the Kaiser Family Foundation. A consumer has to really do some homework to save money.