All about health savings accounts

Many healthy people enrol themselves in a health insurance policy every year for two reasons mainly – to get tax benefits on the health insurance premium they pay, and to have a safety net ready in case they face some unforeseen health expenses. But most such health policies have what is referred to in the industry as deductibles. Deductibles refer to that portion of the insurance premium that is taken by the insurance company but doesn’t go into the sum assured of the person taking insurance. This is done to account for the various medical expenses that the insurance company doesn’t provide coverage for. As a result, people enrolled in a high deductible insurance policy actually have a large part of their premium getting deducted from the effective coverage amount. Many people therefore choose to go for even higher premium amounts, so that the coverage amount can be increased even after paying off the deductibles. But such people have a much smarter option – they can choose to open a Health Savings Account in conjunction with their medical insurance policy. 

What is a Health Savings Account? 

A Health Savings Account (HSA) is an account where you can deposit money as and when you want, and keep in for medical expenses that might be required in future. It is generally opened in conjunction with a health insurance policy and the funds you deposit into the HAS are added on to your insurance coverage amount after subtracting the deductibles from the policy. 

Benefits 

The first and obvious benefit is that it widens the safety net for you in case you really have a medical emergency, because only a health insurance might not give adequate coverage because of the high deductibles, and putting more money into premiums will only result in more money being deducted. Second, the amount withdrawn from a HSA to meet medical expenses is exempted from tax in the same way that your insurance premiums are. Third, insurance policies usually exempt certain illnesses and their treatments from the coverage, but the money in your HSA is free for you to use in any medical expense you like. 

Caution 

Although regular medical expenses can be paid for by cutting a check from your HSA without attracting any tax or penal fee, but there are certain items of expenditure that you need to be cautious of. Some examples are cosmetic surgeries, health club memberships, and purchase of non prescription drugs like vitamin supplements. If you spend money from your HSA on these expenses, then you will have to pay a penalty.