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4 Things to Know About HSAs

People with HSAs put the money they save on their monthly premiums into a tax-free savings account, and use the money that builds up in the savings account to pay for the occasional doctor bill.
07/13/2015 04:21pm ET | Updated July 13, 2016
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What exactly is a Health Savings Account? It's a tax-free savings account that's generally paired with a high-deductible insurance policy to provide affordable health coverage.

The downside to HSAs is the high-deductible insurance is intended primarily to protect people against the cost of catastrophic illnesses, like cancer, or injuries that might require surgery. So it doesn't cover routine doctor visits.

People with HSAs put the money they save on their monthly premiums into a tax-free savings account, and use the money that builds up in the savings account to pay for the occasional doctor bill.

Here are more details to consider if you're considering an HSA...

1. Be sure you understand the basics

An HSA is basically a qualified high-deductible health plan with premiums that are lower per month than a traditional health plan. The cash you're saving with those lower premiums goes into a tax-free savings account. You can then use it to pay for routine kind of stuff or you can invest it for your future.

HSAs are great for certain kinds of people. For example, if you're self-employed, you get a tax deduction for putting money in. Then the money grows and can be spent tax-free. It's such a great triple threat. You can contribute a maximum of $3,350 for a single person and $6,650 for a family this year.

Where these kinds of plans really shine is for catastrophic things, not if you have the sniffles and want to go to the doctor. If your health gets really bad, there are more holes in your coverage than Swiss cheese with so many traditional health plans. Yet with an HSA, if something bad happens to you, you are covered to the max.

2. Pick the right investments for you

HealthSavings.com and HSAFinder.com both offer quotes and other info for individuals looking for HSAs and companies looking to start HSA enrollment for their employees.

HealthSavings is a Vanguard affiliate of Vanguard and offers a full suite of 22 Vanguard no-load mutual funds. There's even a simple money market account available for those who like to take the conservative approach with their money.

HSAs are not for everyone, but if you are in fairly good health and generally seek value in everything you purchase, this program probably will allow you to reduce health insurance costs and retain the savings.

3. Name your own price for health care

If you have an HSA and have to pay for routine procedures, you know that every dollar counts. Enter bidding for health care à la the Priceline model as a way to save money!

BidonHealth.com lets you put the care you need out for bid from multiple providers who need to keep their radiology techs busy during slow hours. The site claims it will save you 60 to 90 percent on radiology tests.

The Arizona Republic reported a woman who was on her husband's high-deductible health plan needed a spinal MRI of her spine and was quoted $3,200 at a nearby radiology office. So she went on to BidonHealth.com and successfully bid $350 for the same procedure at a facility about 190 miles away. She had to drive about three hours to have the test, but what a savings!

4. HSAs are just one answer to our health care quandary

Health care accounts for 20 cents of every dollar of economic output in the United States, with much of it coming from government and private employers.

We all know this system lacks transparency and is anti-free market. So what would I do to fix the mess in Washington if I were in our nation's capital?

I would take health care out of hands of employers and government. Each individual would be responsible for buying his or her own policy, if they wanted to. The elderly and those of low income would get a voucher to go shop for coverage on their own. That way, we would become consumers again, shopping for the best deals. HSAs go a long way to achieving that goal.

But since we're not doing it like this, we have removed capitalism from 20 percent of our economy...and that is not sustainable.

For more money-saving tips, visit ClarkHoward.com. Money in Your Pocket. Advice You Can Trust.