After life cover products, health insurance, or mediclaim, is one of India's most popular insurance products. People may not have their own homes or cars, which need insurance, but they always have their health, so it is unavoidably necessary. The health savings account is a different class of medical product. It will take some time before people in India fully understand the opportunities presented by this concept, given how new it is for the Indian market. Why would someone need a health savings account when they already have access to health insurance? To answer this, let's go through the details of a health saving plan.
What is a Health Saving Plan?
A Health Savings Account (HSA) is a tax-deductible savings plan that enables you to set money aside before taxes for future healthcare costs. A health savings plan (or Health Saving Account-HSA) provides health insurance coverage and premium savings for future medical costs. It is an alternative to a conventional insurance health plan. HSA enables you to save money for future medical expenses, particularly during retirement, and pay for currently covered expenses.
Some of the features of a health savings plan include-
1. Health insurance within your means: Use your health savings account to pay for all regular medical costs, such as lab tests, doctor visits, and over-the-counter medications (with a prescription only).
2. Tax savings: A health savings plan allows you to make tax-deductible financial savings.
3. Portable funds: Because it is your account, you can take funds from your health savings account even if you change jobs.
4. Earned interest: The interest you receive on your savings is tax-free as well.
5. Added benefits: 30-40% of the sum insured goes into a savings account. The rest goes for insurance coverage.
6. No time restraint: There is no rule like "use it or lose it", so you can accumulate the savings for unexpected medical expenses.
7. Control: You will have the freedom to decide how much money you want to set aside for medical expenses. In accordance with costs and quality, it also gives you control over how the money is spent.
Why is There a Need for Health Saving Account in India?
The factors driving HSA include the cost of medications, the burden of managing chronic lifestyle diseases, and rising healthcare and hospitalization costs. A person spends three times as much on pre- and post-hospitalization costs in India. This is due to the low penetration of health and life insurance, which primarily covers in-patient healthcare costs. These costs are generally not covered by health insurance.
The current healthcare finance needs met by unorganized money lenders and gold loans in the market fall far short of the financial needs of an individual related to health. More than 55M families declared bankruptcy during the pandemic as a result of medical costs, according to studies. Although the insurance industry is attempting to close the gap, the change is insignificant.
Depending on the health status of you and your family, a suitable selection of health/life insurance options will be provided under the HSA. HSA is therefore thought to be the answer to the issue mentioned above. You will receive a special savings account for medical expenses tailored to your medical requirements. In addition, it will offer the ideal mix of healthcare financing options to cover medical costs and guarantee little out-of-pocket spending. As a result, HSA will significantly reduce the gap, and the bankruptcy rate caused by medical debt will also decline.
How Does a Health Saving Plan Work?
Both your contribution and a payroll deduction are options for funding an HSA. Both choices are regarded as tax-free. In addition, the insurance company does not need to give prior consent before using HSA funds for any medical expenses.
Any unused funds are carried over to the following year. A high deductible catastrophic insurance plan that kicks in for expensive hospitalisation cases is paired with HSA funds. The base premium for these plans is significantly less than that of a comprehensive insurance plan because the deductible is high. The main advantage of introducing HSA-based coverage was to give you (the insured) more control over medical expenses.
Any withdrawal for purposes other than medical ones is treated as income in the year of the withdrawal in order to enforce the use of funds for medical purposes. Therefore, a 10% additional penalty is imposed on the withdrawal in addition to the income tax. However, after the age of 65, this fine is waived.
Which is Better- Health Insurance or Health Saving Plan?
The best way to respond to this question of which is superior is to weigh their benefits and drawbacks.
1. Range of Options:
The health insurance market in India is much more developed than savings accounts and offers a broader range of products.
2. Cost Coverage:
Most health insurance plans have a time limit and exclude coverage for many diseases. However, because you can easily use the savings portion of your account for any medical emergencies and requirements, this is the situation where a health saving plan thrives. Therefore, it is clear that a health savings account offers greater coverage and flexibility.
3. Tax Benefits:
Most people are now aware that some of the costs of health insurance are tax deductible, but not all of them. As long as the money is withdrawn for medical or health requirements, health savings accounts, on the other hand, are non-taxable savings accounts.
4. Availability of the Funds:
Finally, health insurance guarantees that a lump sum can be claimed when needed, whereas with HSAs, one can only access the accumulated amount of money, which may not be enough to cover the costs at the time.
Considering these points, it may initially seem that a health insurance plan is more advantageous. But a health savings account may be a better option in a few years if you want to save money while still ensuring that you have full health or medical coverage.
Conclusion:
Health saving plans are best suited to your profile if you want a safety net in your health insurance plan and don't want to risk losing all of your money. However, it is advised to evaluate your current financial scenario and your healthcare needs before deciding to opt for a health saving plan or health insurance plan.
