What are health savings accounts and their significance?

A health insurance plan is almost mandatory for all individuals in the United States of America. Though it is not enforced, you will find it extremely unviable to survive without a health insurance plan or a HSA (health savings account). When we talk of insurance, the deductible is a very important criterion that has to be considered.

You need to know what your deductible is going to be when you get an insurance plan. It may seem very nice to hear about a very large coverage with very low premiums, but the catch is in the deductible. The higher your deductible is, the lower your premium and vice versa.

The internal revenue service or IRS recently announced that the maximum contributions made by people will increase and so will the minimum deductible amounts.

The highest contribution that can be made with a HSA in 2010 for an individual is now $3050, and that is a rise of $50 from the previous year. If you intend to go for a family plan, the highest contribution will now be $6150 which is an increase of $200 over the year 2009.

The maximum limits on the deductibles have also changed. It is now $5950 for single individuals which are a substantial increase of a $150 over the previous year and for a family plan, it is now $11900 which is a $300 increase over the year 2009.

The minimum deductible limits have also increased. It is $1200 and $2400 for singles and family’s respectively. In the year 2009, it was just $1150 and $2300 for the said plans.

Now, let us quickly understand how the health savings account works. If you want to look for the cheapest option to get medical coverage, the best option would be to link a health plan with a high deductible to a health savings account. This is a cost effective option for buying medical coverage. You can save up to 50% on your medical bills this way. The reason for this is simple. A high deductible health plan will allow you to pay very low premiums every time period, be it annual, quarterly or monthly. You can contribute your excess savings to the health savings account. The health savings account is similar to the IRA and it will not be taxed. You can now use your savings from the HSA to pay for those medical expenses that are not covered by the health insurance plan, such as, going to a dentist, cosmetic treatments, unconventional or traditional medicine, over the counter drugs etc. You can also use the money in this account in case you are in a dire medical situation and do not have any cash handy.