Best Ways to Save on Health Insurance: Open a Health Savings Account

Health Savings Account Basics

In trying to figure out how to save on health insurance for employees, many employers began offering the option of contributing to a health savings account. This account is like a combination of a savings account and health insurance policy. It basically allows you to set aside funds for medical purposes on a pretax basis so that by year’s end, you will have saved the potential of hundreds in medical expenses. For example, suppose you contribute $1,000 to your plan. If youre in the 25% federal tax bracket, you save $250 in taxes. Not bad.

The Issue with Health Savings Accounts

While there are tons of benefits associated with the health savings account, there are potential disadvantages that you should be aware of:

• You must estimate your spending. When you sign up for a health savings account, you must determine in advance how much youll spend for the entire year this is not always easy to do, and can result in you having too much or too little in your account.
• No leftovers allowed. Another potential disadvantage associated with this type of plan is that you must spend all of the funds before the end of the year. If you dont, you will lose the money.

If you can do a good job of estimating and actually spending your funds, you can maximize on the tax benefits associated with the health savings account so that you no longer have to wonder how to save on health insurance.

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