The combination of Health Savings Accounts (HSAs) and high-deductible health insurance plans are being promoted as an innovative approach for controlling the escalating costs of health care.

The combination can, in theory, lead to lower premiums and the ability of employees to invest and retain dollars that are not spent on medical services. These plans will typically have a deductible of at least $1,000 for singles or $2,000 for families. That means all incurred expenses, including routine doctors office visits and prescriptions, would be paid in full by the employee until their deductible is reached. Only then would the health insurance coverage start.

To set aside money to cover those high deductibles, employees establish a Health Savings Account. The new (and still evolving) HSAs are similar to a 401 (K) plan. Each employee puts money into their HSA on a tax-deductible and tax-deferred basis. As medical expenses are incurred, money is withdrawn from the HSA, without any tax implications, to cover those un-reimbursed medical expenses.

At first glance, HSAs may seem similar to the old Flexible Spending Accounts (FSAs) for medical expenses, but they are not. The great advantage of HSAs are they are not “use it or lose it” like the FSAs. Money set aside in an HSA that is not spent on medical expenses, continues to grow in a variety of investment vehicles and remains the employee's. So it is a true "savings" plan which can be used down the road for other purposes, and then taxed similarly to distributions from an IRA.

For more information about Health Savings Accounts and whether or not they make sense for your business, call us at (800) 426-2413