Health Savings Plans

In 2003, President Bush signed into law legislation regarding health savings plans. For those who didn't hear about them, didn't hear enough about them, or want to hear more about them, here's the scoop.

In an effort to make health insurance more accessible and more convenient for more people, the government has established guidelines that you can follow to get a special tax-free savings account for medical expenses. Health savings plans are meant to be an alternative to traditional healthcare insurance, which requires high monthly payments in return for low deductibles and covers a limited number of smaller expenses like visits to your doctor or prescription drugs.

Instead, health savings plans require you to have an insurance plan with a low monthly payment and a high deductible. This means that you pay out-of-pocket for the expenses below your deductible limit, but in return you get to set up a health savings account. The money in these accounts (which some people call 'medical IRAs') can only be used for medical expenses—the smaller expenses that aren't covered by your insurance policy—and unused money accrues in the account until it eventually supplements your retirement or your medical expenses after retirement.

For some people, especially self-employed persons, deposits to health savings accounts are tax deductible; however, the balance of your account can only be increased by a set amount (around three thousand dollars) per year.

While you can't qualify for a health savings account if you have other (non-high-deductible) insurance policies, there are some exceptions. For example, you're allowed to have auto, dental, vision, disability, and long-term care plans in effect at the same time as your high deductible policy; job benefits shouldn't keep you from qualifying.

If you're interested in getting a health savings plan and setting up a health savings account, you can talk to your employer or your local bank or credit union. In addition, many insurance brokers are starting to get involved in establishing health savings accounts. Find someone you trust to advise and guide you, as regulations can vary from state to state.