With healthcare costs on the upswing, businesses are junking their preferred provider organization based healthcare plans, and replacing them with health savings accounts (HSA). Turns out, their employees - and even regular consumers - love them. Why HSAs? They could mean good health coverage and a solid tax deduction from your 2011 tax bill. (For more, read Health-y Savings Accounts.)



TUTORIAL: Intro To Insurance

According to data obtained from insurance giant Golden Rule, the HSA deduction, which can be found on line 25 on your Internal Revenue Service Form 1040, is deductible up to $3,050 for individuals and up to $6,150 for families.

Golden Rule notes that the benefits of HSAs go far beyond the tax deduction. Here is how the company describes those benefits in a primer on the topic of HSAs:

HSAs Have Two Components:

  • A tax-advantaged savings account coupled with a lower-premium, high-deductible health insurance plan.
  • HSA-qualified high-deductible health plans often cost significantly less in premiums than more traditional health insurance while still providing quality coverage, including preventive care.

The main driver of HSAs – at least in terms of consumer acceptance – is actually a simple one: they keep more of your money in your pocket, and less in Uncle Sam's.

"HSAs make sound financial sense for many families because they enable you to save tax free for medical expenses," said Richard A. Collins, CEO of UnitedHealthcare's Golden Rule Insurance Company. "As the money in your HSA grows, savings are built up to be used for current and future medical care. Since the money in the HSA belongs to you - not your insurance company or bank - you decide when to spend and when to save. When you do spend from your HSA for qualified medical expenses, your withdrawals are tax free."

Now, a new study from the RAND Health Insurance Experiment bears that sentiment out. (RAND's data was published online by the journal Forum for Health Economics and Policy.)

The study acknowledges that, by and large, consumers have little or no control over their healthcare spending. But that changes with HSAs. (For more, check out Healthcare FSAs Increase Your Personal Savings.)

RAND reports that the consumer choice aspect of HSAs saves money on both ends of the healthcare spectrum - for consumers and for caregivers.

The RAND study points out that HSA customers reduced their healthcare costs overall, even after they visit a healthcare provider for treatment. That's mostly because, with more control over their healthcare pocketbook, consumers are choosier about what medical services they pay for. It also points out that about 65% of the reduction in healthcare costs found in the study were from consumers "initiating care less often."

Overall, the study found about two thirds of the reduction in total healthcare costs was from patients initiating care less often and the remaining third was from a reduction in costs after care is initiated.

"Unlike earlier time periods, it seems that today's consumers can have greater influence on the level and mix of medical services provided once they begin to receive medical care," explains Amelia Haviland, a statistician at RAND, in a statement. "We found that at least part of the savings in cost per episode reflects choices for less-costly treatments and products, not just a reduction in the number of services."

Haviland adds that healthcare savings accounts drive consumers to three "buying factors" that reduce healthcare costs:

  1. Lower use of name-brand medications
  2. Less in-patient care
  3. Lower use of specialists

Incentives for lower spending are part and parcel in HSAs and consumers are starting to catch on. That's a huge incentive for adult Americans.

The Bottom Line
The Kaiser Family Foundation says that the average annual family healthcare price tag in the U.S. has crested at $15,000, and the average deduction is now at about $2,000.

Anyway to bring those prices down is welcome news to cash-strapped U.S. families. With HSAs, the answer to those high costs just might be right under their noses. (To learn more about healthcare plans, see How To Choose A Healthcare Plan.)

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