How a Health Savings Account Can Help Protect You from Deductible Shock

Rising health insurance costs have Americans looking for ways to save their hard-earned money — without sacrificing the quality of care in the process.

When it comes to cost and coverage, you can either buy an expensive plan with low deductibles and co-pays, or a cheap one with high out-of-pocket expenses. But while you may not need all the coverage of an expensive plan if you’re a relatively healthy individual, the steep deductible of a low-end plan could be too high in case of a catastrophic event. That “deductible shock” is not a pleasant experience.

So what can you do? Consider a Health Savings Account (HSA). It allows you or your employer to deposit money into an account to be used solely for health-related expenses. The money can be deposited tax-free, and can also be withdrawn tax free if you use it for qualified medical expenses. To be a qualified expense under IRS rules, it must be primarily for the prevention or alleviation of a physical or mental defect or illness.

To open and use an HSA, you must be enrolled in an eligible high-deductible health plan (HDHP). This kind of plan is designed to cover catastrophic medical expenses, and typically has limited exceptions for dental, vision, and preventative care, first-dollar coverage. It could be an HMO or a PPO if it meets the minimum deductible of $1,300 for an individual or $2,600 for family coverage.

Certain other exclusions also apply. You are only eligible for an HSA if you:

• Are covered by a High Deductible Health Plan,
• Are not covered by other health insurance,
• Are not enrolled in Medicare, and
• Can’t be claimed as a dependent on someone else’s tax return.

Once your high-deductible health plan is in effect, you can establish your HSA. In addition to cutting your taxes and reducing your health insurance premiums, you own and control the money in your HSA. You alone are responsible for deciding whether the money you spend is for a qualified medical expense. If you use it for anything other than qualified medical expenses, you’ll pay taxes.

If you’re in the market for health insurance on your own (meaning, you’re not in an employer-sponsored plan where your company chooses for you), don’t forget to shop around to reduce your costs as much as possible. Also, be sure to check out our Weiss Safety Ratings to make sure your chosen insurer is financially sound.

Here is the latest safety ratings break-down for all insurers whose main business is to provide health insurance:

If you’re looking to find a highly rated company near you, you can always check out our Recommended by State list, too.

The bottom line is that an HSA could help you save money and still get quality care. But as always, your decision will be based on your own personal circumstances — and especially your health.

Think Safety,

Gavin Magor

Insurance Insights Edition, By Gavin Magor, Senior Financial Analyst Gavin has more than 30 years of international experience in credit-risk management, commercial lending and insurance, banking and stock analysis and holds an MBA. Gavin oversees the Weiss ratings process, developing the methodology for Weiss’ Sovereign Debt and Global Bank Ratings. Gavin has appeared on both radio and television, including ABC and NBC as an expert in insurance, bank and stock ratings and has been quoted by CNBC, The New York Times, Los Angeles Times, and Reuters as well as several regional newspapers and trade media.