Have you already enrolled for a Health Insurance plan? The open period to sign up for health insurance runs through February 15, 2015. See my last post for more information on how to choose a plan.

You may have noticed that the majority of plans that are available on the Health Insurance Exchanges are in the Bronze and Silver category with lower premiums, and therefore higher deductibles. For most people it is difficult to budget for next year’s health care cost.

Looking at the different expenses for medical, dental or other health care treatment in 2014 can help planning how much is needed to cover the normal expenses for your household. Any planned surgeries, dental treatment or medical tests that you want to do in 2015 have cost that have to be added. Mayor health insurance companies have cost of treatments on their website.

No matter what plan you choose, nobody will be able to accurately estimate all expenses, unless you really do not have any medical issues. The uncertainty on what will happen, and what the cost will be, are two reasons why many people decide to have a plan that covers more faster. The higher premium will pay for more treatments after you meet the lower deductible. But if you do not need any special medical care, you pay a higher monthly premium for a service that you do not need.

If you are willing to take a little risk and select a plan with a high deductible, you pay for what your basic needs are. If then something unforeseen happens, you pay it only when it actually occurs. When you select a plan with a higher deductible, you have more control of how you spend for medical conditions. A negative side is that some people will skip medication or postpone treatment because they do not have the money available and the plan has not a lower co-payment like a HMO or PPO.

A way to mitigate the fear of not be able to pay for unexpected health care is having a Health Savings Account (HSA).  By saving every month a certain amount into the HSA, you have funds available when you need it.

Who can get a HSA?

A qualifying high deductible plan for a single person should have a minimum deductible of $1,300 and a maximum of $6,450. A family plan has to have a minimum deductible of $2,600 and a maximum of $12,900. However, there is a limit on the amount that can be contributed to the HSA. For individuals this amount is $3,350 and for families the maximum contribution is $6,650 for 2015.

What are the advantages of a HSA?

1. You can save for unexpected medical expenses with money that is tax free. You can make contributions by deductions from you paycheck. Your employer can do this before calculation of payroll taxes. However, you also can contribute after receiving your wages and deduct the total amount you saved in the year on next year’s tax return. Anyhow, withdrawals for paying qualifying health care expenses are not taxed either.
2. The HSA is not limited to a specific period. It is your money if you use it or not. Any amount left at the end of the year rolls over. You even can keep the funds in the account until you retire. When you turn 65 you can use the money for anything without paying a penalty. The IRS applies the same rules as for traditional IRA’s and will tax the distribution.
3. A high deductible Insurance plan is often offered through employers, but you can also get one by yourself and then can cover out-of-pocket expenses through a Health Savings Account. You decide the amount what you want to contribute. Say that you take the difference in premium form your old plan (HMO or PPO) and the High Deductible plan and put that amount in the HSA. If you do not need all for medical expenses, you will have money for next year. Once you have the full amount of your deductible available in the account, you are covered for all out-of pocket expenses. It might take you a few years, but the money is yours and you can use it for qualifying medical procedures, medication and even over the counter health products such as band aids, pregnancy tests kits, or specific medical equipment such as crutches.
4. Many institutions that offer HSA’s have different plans. Some offer a basic interest rate, but others have the possibility to invest the money. The interest that you receive grows tax free.

A Health Savings Account has a few limitations:

1. You only can open a HAS if you have selected a qualifying High Deductible Insurance plan.
2. You can only contribute till the age of 65 or when you start receiving social security benefits or enroll for Medicare
3. Withdrawals before turning 65 for other than medical purchases incur a penalty of 20 percent.

This post is not comprehensive of all possible scenarios and details that can determine if this kind of pre-tax emergency account is beneficial for you and your family. I firmly believe that the advantages of owning a HSA as a long term financial source for health care is a more cost effective strategy than paying a higher premium for health care that I might not need.

If you have chosen for a High Deductible Health Insurance plan and want to reduce some of the out-of pocket expenses, watch this video for an alternative way to control your health care expenses.

Learn about another Health Care Solution here.

I welcome your comments on this post and any tips you have for readers to curb cost of medical services that are not covered by an insurance plan. Contact me for a free HSA work sheet that can assist you in calculating how much you could save.