| By :
Marilyn Katz
Do you understand health savings accounts (HSA)? These plans actually consist of two important parts, and they can benefit many people. But HSA health plans are not for everybody! One is a higher deductible major medical insurance policy. The other one is the actual savings account. In theory, the medical plan will pay for large medical expenses that are covered as soon as the deductible is met. If the account gets funded, it provides the money to cover many bills that would not be included in a major medical policy, or it can pay bills until the deductible is reached. There are some key advantages to having an H.S.A., but these will not benefit everybody. First look at some of the benefits. Then it will be easier to decide if you should be an H.S.A., PPO, or HMO! The contributions the savings account will not be taxed if they are within current IRS limits. Since pre-taxed income can fund the account, this reduces tax bills. This makes that money go further. If the money does not get used in one year, it can keep rolling over to the next year. Hopefully, this gives a family or individual the opportunity to set aside enough money to help them with medical expenses. Some accounts even earn interest just like regular savings accounts. In addition, the account may be used to pay for some health care costs that would not even be covered by major medical insurance. Consider some of these health expenses that may not be covered under a major medical plan. They could include vision and dental care, natural supplements, etc. Make sure you consult current tax rules and specific plans to see how the money can be spent. Because the actual H.S.A. health insurance policy has a higher deductible, it should be cheaper than a lower deductible policy too. Some insurers relax underwriting rules a bit for higher deducible insurance so there is also a chance that more people would be accepted. For those who are accepted, but may have some minor health conditions, there may be a better chance they will only have to pay standard rates. By now, you may have figured out that some people can realize a big benefit from this type of plan. If you need an additional tax deduction, this is a great way to get it while saving for future health expenses. An H.S.A. also allows you to control your costs by paying less for major medical while saving for future expenses in a way that gives you tax advantages. A health savings account can combine with a higher deductible major medical plan to benefit a disciplined saver who can benefit from tax deductions. The cash account will keep growing, so it can continue to grow from year to year. At retirement age, the money can be withdrawn with no penalty. As mentioned before, these plans do not work out that well for everybody. The savings account only benefits good savers who actually deposit money. If a plan member never makes deposits, there will not be any cash in the account when bills need to get paid, and there will not be any tax deductions!
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