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health savings

HSA stands for Health Savings Account, a tax-advantaged savings account that lets you set aside pre-tax dollars to be used for future medical costs. It is not actual insurance, but allows individuals or families to place money in a tax-free account to save for medical expenses.

Young healthy people may be attracted to an HSA because they don’t typically require a minimum balance and the savings never expire, even if the person is no longer on the original medical plan that was used with HSA. These accounts, combined with a high-deductible health insurance plan, also offer certain income tax breaks that make them even more desirable.

Another reason an HSA may be a good option for you is if you don’t have a chronic condition and spend little on health care annually. Since the savings are tax-free you can buy more health care services for less money if you have very low expenses. You also benefit because the balance in the savings account rolls over from year to year. The account is a great way for people with a small amount of claims to have a big chunk of tax-free money ready when a bad illness occurs.

The main drawback of an HSA is there are no insurance payments until the deductible is met and this can be quite expensive. One way to avoid the high costs of office visits is to enroll in a telemedicine program.

Talking to people that have or had HSAs, they complain about them being confusing and complex. They say many doctors’ billing departments don’t handle them correctly and they are left frustrated. A few have even considered getting rid of it.

My family doesn’t have an HSA because we don’t have a high-deductible health insurance plan. Instead we have a HMO with no deductibles and just co-pays.

Whether you are going to use the account to pay for medical expenses in the current year or use it as an investment, it’s a good idea to do your homework. Research banks, credit unions, insurance companies and other financial institutions and consider what each has to offer. Each administrator or custodian has their own policies and fees. Enrolling in an HSA may make sense for you.

Nikki Ducas is a Fredericksburg mom teaching her two young sons financial responsibility.

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