The trade association America's Health Insurance Plans said that the number of people using a high-deductible health plan linked with a Health Savings Account (HSA) increased by 14 percent as of January 2011. By 2010, 10 million people had moved to this type of health insurance and by 2011, 11.4 million people had an HSA Plan.
Individuals who have to buy their own health insurance have been switching to plans with deductibles to get less expensive premiums. Businesses have been doing the same, and are now offering more group coverage with higher deductibles. So, what do these Health Savings Account Plans mean for both employees who get an HSA Plan through work and individuals who buy the plans on their own?
What Health Savings Account Plans Mean For Employees
Banks and mutual fund firms talk about HSA Plans as an opportunity for people to invest and get tax-free earnings, but someone has to make those deposits. Both the employer and the employee can contribute to the employee's HSA. The deposits made by the employee can be used as tax deductions to reduce taxable income even if the employee never spends the money for health care. It can be a pure investment option and a tax deduction at the same time.
Unlike IRAs and Roths, money invested through an HSA can continue to grow long after the HSA owner has turned 65 and/or retired because HSA funds have no mandatory withdrawal requirements. HSA money is not locked up until the owner becomes 59-and-a-half like IRA and Roth funds, either. HSA funds can only be used for qualified health care expenses, but a long list of health care can be paid for through an HSA. HSA money can cover health care for other family members, too, even if they are not listed on the insurance policy.
What HSA Plans Mean For Employers
According to a survey by the National Business Group on Health, U.S. employers expect their health care expenses to increase by an average of 7.2 percent. Health Savings Accounts are attractive to employers because the health insurance plans that can be combined with an HSA tend to have lower premiums than policies without a deductible. Employers often say employees are careful about how they spend HSA funds because any money left in their account becomes their retirement fund.
America's Health Insurance Plans found that, on average, annual premiums for family coverage through an HSA Plan ran about $10,248. That's considerably below the annual average for all family health plans combined. That figure was $13,770. The difference could help the employers' bottom line because employers average paying about 70 percent of family coverage premiums for their employees, according to the Kaiser Family Foundation.
HSA Plans can also reduce account management costs for employers since employees can research HSA administrators, set up their own accounts and select how to invest the balance. Employers do have to show employees how to use an HSA, but HSA administrators prepare material to help with that.
With the high cost of health insurance premiums, HSA Plans have gained a market share by offering a low-cost alternative. Encouraging saving for retirement in a nation where an increasingly small minority has enough to see them through retirement can be very helpful, too. An HSA may not be the best option for every person with significant health care needs, but more and more people are making the move away from expensive health insurance policies that give back little to those who remain healthy and need little medical care. They're switching to HSA Plans.
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