Combine HSA with Medical Insurance to Save Money

The cost of health insurance continues to rise, almost becoming unaffordable in some cases. However, the consequences of not having any medical insurance can be even more devastating. If something unexpected happens, you could be bankrupted. You can, though, save some money while ensuring that you are protected by insurance in the even of a medical emergency. A Health Savings Account (HSA) can be a helpful tool.

What is a Health Savings Account?

A HSA is a special account that works like an IRA. You put money into the account and it grows with tax advantages. Your contributions are tax deductible, lowering your taxable income and save you money at tax time. You can withdraw the money to pay medical costs, including co-pays, medications, medical supplies, and even some over the counter medicines (although you will need a prescription to use HSA money for OTC drugs). When you withdraw money from your Health Savings Account to pay for qualified expenses, the money is tax-free.

In order to qualify for a HSA, you have to have what is known as a high deductible plan. These types of plans usually have lower premiums. So, if you are paying $600 a month for health insurance, your new premium might be $350 on a high deductible plan. That’s a savings up $250 a month. You could put $200 of it in your HSA, to build up and help you meet your deductible and co-pays. You could save $50 a month overall. Online insurance quotes can help you.

The Money in a HSA is Yours

It is important to note that the money in the Health Savings Account is yours. Even if you get your HSA through a medical insurance company or through work, you actually own it. So, some of the money you set aside for medical care is your own, rather than going to the insurance company. And, because the HSA operates like an IRA, you can actually withdraw money for non-medical expenses once you reach age 59.5. However, you will have to pay taxes on non-medical withdrawals; health cost withdrawals remain tax free.

A HSA Isn’t for Everyone

Realize, though, that a HSA isn’t for everyone. If you have a chronic condition, or if you have a family that gets sick or injured regularly, you might not be able to afford the out of pocket costs associated with a higher deductible. Run the numbers before you decide to get a high deductible health insurance plan and a HSA.

A Health Savings Account often works best for those who have few health care needs, since paying out of pocket would still result in spending less than medical insurance premiums. For instance, if you spend $600 a month on health insurance premiums, you are paying $7,200 a year. However, you might only need four doctor visits a year (perhaps $150), and your medications might only cost $1,000 a year. That means your health insurance company is only paying out $1,600 for you – and you are paying in $7,200. With a high deductible plan, though, you would take on the $1,600 yourself, and pay $4,200 (keeping with our above example) in premiums. The new total would be $5,800 – saving you $1,400 a year. If you put that in your HSA, it would grow tax-advantaged, while at the same time providing you with a deduction. As you can see, if you don’t have many health costs, you might find it a HSA beneficial.

Miranda Marquit is a professional blogger specializing in personal finance. She writes for numerous web sites, including, a site specializing in online insurance quotes, and her own blog at the Personal Finance Corner.