Does an HSA Replace Insurance?
Health insurance helps you pay for medical expenses that may be beyond your own budget. There is a myriad of health insurance plans, all with different terms, deductibles and rules about what expenses they will cover. If you work for a large business, you may have the opportunity to participate in a group health insurance plan. If you work for yourself or do not have business insurance, you may need to buy private insurance directly from the insurer. There are also a number features which do not replace health insurance but add to it, including HSAs.
Health savings accounts, or HSAs, are specialized savings accounts that become available along with a health insurance policy. Not all policies offer HSAs, and the rules may differ slightly based on what policy you have, but in general you can channel funds into your HSA and then use these funds to pay for medical expenses, from new contacts to doctor visits that your normal insurance will not cover.
HSAs boast several advantages. The HSA is tax-sheltered, so in addition to making interest on any funds in the account, you also do not have to pay the same taxes on it as you do on regular income, saving you money in the long run. Also, it may not be only you contributing to your HSA: some companies also make contributions if you opt for the account.
An HSA and a health insurance plan are not separate options; they go together, and you cannot have an HSA without health insurance. An HSA cannot stand alone, it is only an option that some policies include. A health insurance plan can stand alone, but it may not offer as much flexibility as a plan with an HSA. But no insurance company will offer only an HSA without any policy.
HSAs do not have requirements associated with your health insurance plan. For instance, very few insurers will offer any type of savings account with private insurance. It is not cost effective for the insurers to offer a separate account for each small policy that individuals purchase themselves. Instead insurers offer a group of accounts to a business as part of group health plans. These group health plans must qualify for HSAs first, which generally means you will have to pay higher deductibles on your medical coverage to enjoy HSA flexibility.