With health care costs rising regularly — including rather steep recent jumps, many are finding themselves trying to figure out how they are going to afford their health insurance. One solution that many are turning to is the Health Savings Account.

A Health Savings Account (HSA) is a tax advantaged account that allows you to put before tax dollars into an account. This money grows tax free, as long as it is used for qualified health care expenses. Because you must have a high deductible health plan in order to get a HSA, this often means that your health insurance premiums are much lower. It is important to note, though, that a HSA isn’t for everyone.

Stick with “Traditional” Insurance in Some Cases

A more “traditional” health insurance set up might be preferred if you have high health care costs. This is because a high deductible health plan comes with the requirement that more money be paid out of pocket. In some cases, this means that you could be paying $5,000 out of pocket before your health insurance starts to kick in. If you habitually meet your deductible, plus pay your premiums (even though they are reduced), you might not come out ahead.

For those with chronic conditions, or those with families whose kids need a lot of trips to the doctor (or hospital), having to meet a high deductible can be its own financial burden. It is true that the money set aside in a HSA can be used to meet your deductible, but if you don’t put some of your money into the account in the first place, it won’t be available for your use.

Making Sure You Can Meet Your Deductible

Even if you decide that a HSA is right for you, it is a good idea to do what you can to make sure you can meet your deductible. You can put most of the savings from your insurance premiums in your Health Savings Account, and that will help you build up enough to meet out of pocket expenses until your deductible is met. Be careful; a HSA doesn’t help you much if you are living beyond your means and not setting some money aside.

The good news is that, even if you have a high deductible, routine, preventative visits usually do not need to be paid out of pocket; you only need to make a co-pay. Money from your HSA can be used to make your co-pays, so that can be helpful. Money from your HSA can also be used for dental and eye care visits, which may not be covered by your health insurance company.

Figuring Out if a HSA is Right For You

Before you get a high deductible health insurance plan and open a HSA, you need to make sure that it is the right decision for you. Double check your health care needs, and look at what you have spent in the past. Consider what is covered right now by your health insurance, and how much it would cost you to pay for some of those services out of pocket, rather than having the insurance company pay for it.

You can compare your costs now to the cost of a lower premium + paying out of pocket until you meet your deductible. If you have high medical costs, or recurring expenses, it might be that you are better off with your current situation.



Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.