That's what health savings accounts offer. They're coupled with high-deductible health insurance plans, and they're precisely what their name implies: savings accounts used for health-related expenses.
Contributions to the accounts are made pretax, meaning they lower state and federal taxes for the employee, and they can be made by either an employer or an individual. Further, the money can be used for medical expenses tax-free.
In 2010, the maximum contribution for a health savings account is $3,050 for an individual and $6,150 for a family. Any money unused in the accounts can be rolled over at the end of the year.
(The accounts should not be confused with flexible spending accounts, also called cafeteria plans, in which an individual sets aside money on a tax-free basis in an account to pay for medical expenses. A flexible spending account is not tied to an insurance plan, and the money does not earn interest.)
The high-deductible health insurance plans that, by law, must accompany health savings accounts have annual deductibles of at least $1,200 for individuals and $2,400 for families for 2010. The maximum amount of out-of-pocket expenses in the plans is $5,950 for individuals and $11,900 for families this year.
Because insurance premiums and out-of-pocket costs have surged over the last couple of years, the savings-account option has become more competitive with other insurance plans, said Brent Hitchings, vice president of the Individual, Small Group & Government Business Unit for Blue Shield of California.
Whether choosing the option on your own or through your employer, here are some tips to help ensure you find the combination that best suits your needs.
To HSA or not
Traditional HMOs and PPOs are good for people who are relatively healthy and spend little on healthcare — or who utilize a lot of healthcare services but have a low deductible. They also work well for people who prefer predictability; a doctor's visit that will have a $30 co-pay, for example, and a generic prescription drug that will cost $10, for instance.
Health savings accounts, however, are good for people who want to be in charge of their healthcare costs, who want the tax advantages and who can put money away each month for expenses. The accompanying insurance plans typically cover basic preventive services, and the premiums are often lower than with traditional plans.
Paul Fronstin, director of the Health Research and Education Program for the Employee Benefits Research Institute, advises consumers to consider how often they go to the doctor and what kind of services and medications they use regularly. They should get a ballpark figure of these costs, then take into account any overall premium savings.
Services and options
The health insurance plans that come with HSAs vary greatly. Some have low deductibles and higher out-of-pocket expenses. Some offer pharmacy and other benefits.
The plans are typically PPOs. Hitchings recommends that consumers choose a well-known carrier and that they make sure their existing providers are in the network. They should also consider the deductibles and the out-of-pocket limits.
One of the "gotchas" of health savings accounts can be the plan design, Hitchings said. When the accounts first came out, an entire family often had to meet its out-of-pocket expenditures before the insurance company began paying any co-pays. Now companies offer embedded deductibles, in which it will cover a family member's co-pays after his or her deductible is met, whether or not the rest of the family has met theirs.
Some plans also offer online account access and checks or debit cards for payment.