The idea of a Health Savings Account (HSA) qualified health plan is very simple. You generally have a higher deductible and you pay for everything (except preventive care in all plans issued after September 2010) up to that deductible, then all medical costs are covered subject to the co-insurance and out of pocket maximums. The premium for this type of insurance is generally lower than on a "traditional" co-pay plan. You then put the difference in premium into your savings account.
There are penalties for withdrawing HSA funds that are to be used for other than qualified medical expenses. This penalty is now at 20% as a result of healthcare reform (it was at 10%). On top of the penalty you'll also pay regular income tax.
STATEMENT - why should I get an HSA qualified health plan if it doesn't have co-pays for the doctor visits?
ANSWER - People are used to doctor co-pays and low deductibles so many people don't want to even consider an HSA plan.
The two main advantages that HSA plans have are lower total out-of-pocket expenses (especially with major medical bills) and tax advantages. When you have an HSA you generally will not pay anything when you visit a doctor. The doctor's office will send the bill off to the insurance company. The insurance company will reprice the procedure which will decrease the amount you are responsible in paying. This negotiated amount can reduce the cost of any procedure from 10% to 100%. A real life explanation of this reduction - I had a laboratory service which was originally billed at $173.40 but this procedure was repriced so the I ended up paying $59.57. Another $54 procedure was repriced to $0.
STATEMENT - what changes occured to the HSA plans because of the Affordable Care Act?
ANSWER - All plans effective after September 1, 2010, now has preventive care service covered at no charge to you. You can no longer purchase over the counter medications with HSA funds. Another change is if you cash in your HSA account money there is a 20% penalty instead of the previous 10%.
STATEMENT - what co-insurance should I get?
ANSWER - The best plans have a 0% co-insurance, meaning that once you meet the deductible the insurance company pays the covered medical expenses for the remainder of the year.
STATEMENT - what are the tax advantages?
ANSWER - You can open a savings account that operates much like an IRA account. You put money into this account pre-tax and qualified withdrawals are tax free. For example, you put $75 per month ($900 per year) into this account and are in the 28% tax bracket. You will then get an "above the line" tax credit on your federal taxes which saves you $252. Most states also have a state tax credit. If you pay for your doctor visit out of this account the money comes out tax free. These plans allow you to keep some of your premium dollar in your savings account instead of the insurance company's account, and it is your money that will accumulate year after year if you don't use it.
For further information please follow this link to the U.S. Treasury department.