As an Elite Advisor with one of the top online health insurance agencies in the United States, I often get asked what plan is right for me or my family- a Health Savings Account or a traditional health insurance plan- and what is the difference?

After working with 1000’s of clients, I have established two primary criteria to help in your decision making:

1) The monthly premium you will pay for a plan in your zip code (HSA’s typically carry a lower monthly premium compared to similar traditional plans).*

2) How often do you see a doctor yearly?

What is an HSA?

A health savings account is a high deductible health plan (a plan purchased from a health insurance carrier i.e. - Humana, Aetna, UnitedHealthOne, Blue Cross) combined with a tax-advantaged medical savings account. The funds contributed to the account are not subject to federal income tax at the time of deposit and HSAs are owned by the individual with funds rolling over year after year if not spent. You can usually open up an HSA at your local bank just like a savings account and they will give you a debit card for that specific account. Funds may be used to pay for qualified medical expenses at any time for things ranging from office visits and prescriptions to meeting the deductible for illness or surgery- all without federal tax liability. Withdrawals for non-medical expenses are treated very similar to those in an IRA, but no penalties if taken after retirement age.

(2009-Individuals can contribute up to $3,000 a year and Families up to $5950 a year).

HSA’s typically don’t include any office visits (you will pay for visits out of pocket- or out of your account if you open one up), but many do offer some adult and child preventive care like physicals and immunizations as well as some prescription drug coverage. It all depends on the plan, but most importantly they cover you for major medical events after your deductible is met and most are offered with NO coinsurance (smaller additional percentage that you still owe after you reach your deductible). Don’t sweat the small stuff and get coverage for the big stuff is the HSA motto. The idea is that if you are saving money on your monthly premium and putting the savings into your account, compared to a traditional plan you will be much better off in the long run. I will explain this later.

Who should consider a HSA?

Consumers that are relatively healthy and infrequently visit the doctor are good candidates. Individuals and families on a tighter budget, but need major medical coverage, may consider a HSA as well as recent college graduates coming off a school or parent plan.

What is Traditional Insurance?

Most people in the United States are used to traditional health insurance plans. You just pay your copay for office visits and prescriptions (typically generic) with no deductibles, with maybe some dental and vision benefits included (available now with most HSAs as well. Most insurance carriers offer a wide range for your major medical deductible from zero to $10,000 and up with some coinsurance (smaller additional percentage that you still owe after you reach your deductible). Deductible + Coinsurance = your Maximum Out of Pocket expense before you are covered 100%.

Who should consider Traditional Insurance?

Consumers that are willing to pay a higher monthly premium for immediate benefits – like office visits and RX copays only, and want a lower deductible option are good candidates for traditional plans. Individuals or families that typically visit a doctor’s or specialist’s office more than twice a year per person may also consider a traditional policy.

The Formula!

Let’s just say I am a family of four looking at a $5,000 one deductible family HSA. The policy covers the entire family 100% after the family reaches $5,000 in medical expenses for the year. This plan covers each individual up to $3,000,000 lifetime and includes an annual check-up for each person and prescription coverage after the deductible is met. The monthly premium is about $400 a month.

The same family is looking at a traditional plan that has basically the same max out of pocket $5,000, but 2 people must hit their deductible before the entire family is covered 100%. They also get unlimited office visits and specialist visits for $35 each with no deductible, $15 generic drugs and discounted rates on name brand RX. This plan also includes an annual check-up for each person and $3,000,000 lifetime max. The monthly premium is about $700 a month.

The formula you must run:

Savings will vary for each individual/ family in each zip code and this is just an example. You must evaluate your own situation to decide what is best. I can tell you that the average individual in the United States hits a personal medical deductible about every 7- 10 years.

The HSA has a savings of $300 a month x 12 months = $3,600 a year. This savings almost meets the annual deductible in 1 year. Does your family accumulate $3,600 a year in doctor office visits, Rx, Etc…? Or is better to put this into a Health Savings Account and use the money from that account as needed, letting the rest roll over year after year?

Jon Sladick is a licensed Elite Advisor with My Insurance Expert, one of the top online health insurance agencies in the United States.

* You can run free quotes on many sites.