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The Health Savings Account - HSA - Rapidly Becoming the Healthcare Plan of Choice

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According to a recent study conducted by the Kaiser Family Foundation, Health Savings Accounts (HSAs) have grown significantly in popularity in recent years. As a percentage of overall health plans, HSAs went from 8% in 2007 to about 13% in 2008 - a 50% increase. This rate of growth of HSA adoption is substantially higher than the growth rate for all health plans. The obvious cost benefits of HSA plans are becoming increasingly obvious to cost conscious consumers.

HSAs are pretty much what their name implies: medical savings accounts. HSA plans allow participants to contribute a certain amount of money to their plan each month or each pay period. Employee contributed funds are often matched by employers. As qualified health expenses are incurred, the employee is able to pay the out of pocket portion using available plan funds.
Of course, like most great ideas, the Health Savings Plan comes with a catch. The downside for HSA plans is that they typically come with a rather high deductible. Average deductibles for HSA plans are frequently $2,000-$3000 and sometimes more. A $2,000 deductible means that the first $2,000 of health expenses will be paid 100% by the employee or plan participant - with a few exceptions, depending on the specific plan. This means that the Co-pay doesn't kick in until the deductible has been met. If you are healthy you may never meet your deductible, which means that you will pay for everything out of pocket. That is the bad news. The good news is that you will save substantially on the employee portion of your monthly premium for a traditional health insurance plan and your employer will likely kick in some matching funds to help foot the bill. At the end of the year you may actually have a positive balance in your account. In fact, this is one of the biggest benefits of HSA plan. Any money remaining in the plan at the end of a calendar or plan year will roll over and remain the property of the participant. Account balances can actually grow significantly over time - similar to what you would see in an IRA. The IRS regulates the maximum allowable contribution to a health savings plan each year. The caveat with HSA balances is that the funds can only be used for health related expenditures. However, the rules for allowable health related expenditures are relatively liberal and can include a number of non-traditional treatment and medication options.

With health insurance premiums rising substantially every year, the popularity of HSA accounts is increasing. Because of the high deductible, monthly premiums for HSA plans are typically far more reasonable for both the employee and the employer than traditional health plans. Furthermore, there is an incentive for participants to manage their healthcare use more carefully and shop around for the best deals. This is a bonus to employers who are beginning to see the HSA as a means of containing out of control health benefits expenditures. As an added incentive, many employers are offering to match contributions made by employees who elect to participate in an employer sponsored HSA plan.

A recent study the Mercer consulting indicates that the average healthcare cost per employee for a traditional PPO (Preferred Provider Organization) plan were approximately $7,800 per employee per year, while the average cost per employee per year enrolled in an HSA plan was only $6,200. Further, the costs of providing traditional benefits to employees has been growing at around 6% per year, while the cost of providing HSA benefits to employees is growing at only 4% per year - a significant difference when compounded over time.

Overall, the HSA is proving to be the plan of choice for the future. As employees continue to ring up benefits savings, they will likely continue to share in the savings with the employee by maintaining or even increasing matching funds and finding other ways to provide incentives for their employees to select the HSA option. If used wisely, the HSA can be a win-win opportunity. Of course, an HSA is not for everyone. If you are plagued with a highly expensive chronic illness, a traditional health plan may be more cost effective. It appears, however that the HSA is here to stay and will continue to make market inroads into traditional health benefits plans.

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