Health insurance plans, (called Qualified High Deductible Health Plans) designed to work in conjunction with a Health Savings Account, are less expensive.  They are typically configured to pay 100% of your covered expenses after you have met your deductible amount.  There are no copays for doctors, or drugs, but most people find that this is the least expensive way to insure yourself and your family. 

Although you don't have copays for doctors and drugs, you don't pay the same price that a patient pays if he doesn't have insurance.  For example, if you visit a doctor without health insurance, you will likely pay $150 to $200 for the visit.  However, if you have an HSA, the company has negotiated with the doctor.  He will now only be able to charge you approximately $55 or $60 for the visit. 

This works in a similar fashion for drug purchases.  The company has negotiated prices for the drugs, too.

With an HSA plan, you not only save money on your insurance premium, in 2008, you can put up to $2,900 for an individual, and $5,800 for a family into a savings account – a Health Savings Account.  By merely putting this money into a special savings account, you get a tax deduction when you do your taxes.  It is very similar to making an IRA contribution.  That amount of money you put into the IRA or an HSA account is not taxable.   Assuming that you are in the 28% Federal tax bracket, and then add another 7% for the state taxes, you will save 35% on the money you put into an HSA account.  That means the government is paying about 1 out of every 3 dollars of your contribution for you.

An important distinction needs to be made concerning how deductibles are computed for Qualified High-Deductible Health Plans.  The family deductible is an aggregate or combined deductible.  Each person’s covered medical expenses go toward meeting the family deductible.  In 2008, the maximum family deductible is $5,800.  Each person’s covered medical expenses go toward meeting this amount.  Compare this to a traditional copay plan where three of the insured persons EACH have their own deductible that must be met.  It is much more difficult to have each person meet their deductible than it is to meet an aggregate deductible.

In addition, the money that is in the HSA account can accumulate.  Any money that is not spent on qualified medical expenses each year can be invested to earn interest, or even be put into the stock market.  Any money that is left in your HSA account is not taxable until you remove the money… after you have reached the age of 65. (If you take the money out before the age of 65 to spend on non-medical expenses, you will pay the taxes on the money and a 10% penalty.)  You have never paid any taxes on the money you contributed to the HSA, and no taxes on any investment gains or interest gains.  Therefore,when you do take the money out,  after the age of 65, it will finally be taxed. 

Here are two factors to consider:  First, you probably have a lower tax rate at 65 years old than you have now.  Secondly, money that can appreciate without the burden of income taxes grows at a much greater rate.  After the age of 65, you can withdraw the money to buy a sailboat if you’d like…no longer is there a restriction that you must spend this money for qualified medical expenses.      

You can use the HSA money for a wide variety of medical expenses including eye exams and glasses, doctors, dentists, braces, drugs, fertility enhancement, chiropractor, acupuncture, psychiatrist, psychologist, surgery, and long-term care insurance.  (Long-term Care insurance is the only insurance you can purchase with your HSA money. You cannot use your HSA savings money to pay your health insurance premiums.)  The list is extremely broad. 

Health Savings Account type plans simply avoid the administrative surcharges associated with “copays” by choosing to purchase coverage for large, catastrophic claims and using the substantial premium savings to “self-insure” for the smaller routine claims.

It makes sense to really consider the HSA, Health Savings Account, to solve your health insurance needs.