HSAs, or health savings accounts, are one of the best ways to save on health insurance premium dollars and also control out of pocket expenses.   According to the IRS, maximum contribution levels into health savings accounts for 2010 will increase from $3,000 to $3,050 for individuals and from $5,950 to $6,150 for families (two or more).  100% of the money going into these versatile accounts is tax deductible, they are immediately accessable to use to pay for a variety of medical and dental expenses tax free and, unlike flexible spending accounts (FSAs), there is no "use it or lose it" provision.  Unused balances roll over year after year earning tax free interest and, after age 65, they can be used for retirement income just like an IRA.  The majority of my under-65 clients have HSAs; why doesn't everyone have them?

In order to qualify for an HSA you must first have a high deductible health insurance policy.  "High deductible" is defined for 2010 as a minimum of $1,200 for individuals and $2,400 for families, but many select higher in order to pay a lower premium.  In the simplest form (there are variations), all your medical and prescription expenses accumulate towards your deductible and it you meet it then the insurance company pays the remainder your claims for the rest of the year.   The premiums are often considerably lower for a high deductible health plan than for the more familiar copay plans and the idea is that you take the difference and deposit it into your HSA to create a pool of money to draw on until your deductible is met.   If you had a year with very few expenses then you've kept the money you would have spent on premiums.   Since the maximum out of pocket is also capped on these plans, even in a year with a lot of medical expenses your total costs would still probably be much lower than under the "traditional" plans.

Saving money on health care is just one of the benefits of the HSA, however.  It creates a pool of money that can be used for a whole variety of qualified expenses---see IRS publication 502 (www.irs.gov).  Since the money that goes into your HSA is tax deductible, you're seeing a 30% to 40% discount (depending upon your tax bracket) on anything you buy with that money, from braces to eyeglasses to premiums for long term care insurance.  

How might this work?  Let's use a real example of a family of 4 paying for a health insurance plan with $25 office visits, prescription drug copayments and a $500 deductible.  Their monthly premium is $1,140.  Now, let's move them into a $5,000 family deductible plan for $378/month.  That's an annual premium difference of $9,144, of which we put the maximum of $6,150 (for 2010) into their HSA.  What we have acomplished is (1) given them a health insurance plan which covers everthing 100% (allocate $5,000 of the HSA money for the deductible, just in case) with no out-of-pocket expenses, (2) given them $1,150 (the difference in the HSA) to pay for out of pocket dental expenses, and (3) on top of this, a real annual savings of almost $3,000.  Plus, unused HSA dollars roll over year after year.

There may be changes in health insurance coming in the future as a result of health care reform, but a health savings account is a way for you to save substantial dollars right now.