Health Savings Accounts: Right Choice for You?

Health savings accounts are growing in popularity as employers search for ways to fight back against increasing health-care prices and make their workers more aware of the costs.

HSAs were first made available to consumers in January 2004 and are like personal savings accounts that can only be used for qualified health-care expenses. To open a health savings account, consumers must have a specific type of insurance called a high-deductible plan and any money deposited into the account is not taxed.  With these accounts, there is no limitation on when the money needs to be spent, which means it can be rolled over each year and even combined into a retirement plan like a 401(k).

But is a HSA right for you?

Its really a personal choice of do you go with the higher plan, or the lower deductible? says Nick Calabrese, vice president of consumers and product management at CIGNA. People need to evaluate what their expected out of pocket costs are with each plan.

According to the trade association Americas Health Insurance Plans, more than 11.4 million Americans are covered by HSA-eligible insurance plans, which is a more than 14% increase from a year ago. The association also found that between January 2010 and January 2011, the fastest growing market for HSA plans was for large group coverage and that in the individual market 2.4 million people were enrolled in HSA plans.

The plans are seeing growth because it helps manage costs without sacrificing care, says Calabrese. If an employee qualifies for a high deductible plan this vehicle helps offset out of pocket costs.

How the Plans Work

Whether you are an employee or an individual shopping for health insurance, one of the major decisions youll need to make is whether to go with the high-deductible plan or one with a much lower deductible.

Choosing a higher-deductible plan will mean your monthly premiums will be lower, but if you get hurt you may have to pay more out of pocket than with a lower-deductible plan. By combining a high- deductible plan with a HSA, the employee or individual can use any money contributed for a deductible or other medical expenses that arent covered by insurance.

Employees and individuals can contribute to an HSA either by setting up an automatic withdrawal from their paychecks or contributing periodically via a checking or savings account.  Funds in the account can be used for everything from medical to dental expenses and can be used for any qualified tax dependent in the household.

Consumers using these plans need to stay up to date with any changes to what is considered a qualified purchase. New for 2011, HSA plans no longer cover the purchase of over-the-counter medications that arent accompanied by a prescription. According to Americas Health Insurance Plans, eliminating over-the-counter drugs reduces consumers access to common OTC drugs like allergy medication.  But these changes arent always permanent. According to Dean Mason, Chief Executive of HSA Bank, a unit of Webster Bank, the elimination of some of the things like using money in the HSA for over-the-counter medicine is likely to be restored in the future.

Benefits to Employers & Employees

Employers are flocking to HSA plans because they help reduce the cost of health care and they provide more flexibility in how employees pay for the medical care. HSAs also give users more incentive to be healthy to save spending their own money.

According to a study conducted by CIGNA, people enrolled in HSA plans had 15% lower trend in medical costs in the first year than those in traditional plans. Whats more is people in the plans are 13% less likely to go to an emergency room than those in a traditional plan.

People are making wiser choices and are using more cost effective services, said Calabrese, noting the plans make people become better consumers.