Every year, 61.52% of salaried employees take loans to pay for essential day-to-day needs. A major portion of these needs is an unforeseen medical emergency. Let’s suppose Abhishek is living his happy-go-lucky life and thriving in the corporate world. However, one day, his jaw starts hurting, and he is unable to even take a few sips of water.
He visits a doctor right away and gets the preliminary examination. Post-examination, Abhishek is diagnosed with mouth cancer. With no emergency medical funds and no savings, he won’t have any option but to apply for a SBI personal loan.
However, let’s go back in time and analyse his financial situation. Abhishek, a software engineer in Delhi, earns ₹30,000/month. After paying off his house rent and day-to-day expenses, he is left with ₹15,000/month. Now, instead of investing this amount in a health savings account, Abhishek spends it all partying and enjoying his life.
If he started investing 12 months ago, he would have savings of at least ₹2,00,000 by now. So, should you also start investing in a health savings account?
Let’s understand what a health savings account is and how to open one.
What is a health savings account?
A health savings account is a personal account dedicated to saving money for sudden medical emergencies. A health savings account offers a much higher interest rate on the deposited amount. Secondly, you will save taxes on whatever portion of your pretax income is transferred to this account.
For example, if your monthly salary is ₹40,000 and you transfer ₹10,000/month from your salary to your health savings account, then at the end of a financial year, instead of ₹4,80,000, you will pay tax on only ₹3,60,000.
In short, you will invest less but earn and save much more.
What are the uses of a health savings account?
Once you open a health savings account, you can use this account for everything, starting from a doctor’s appointment fee. Every month, you or your employer can contribute a part of your salary to this account. Once you have a high deposit in your HSA account, you can withdraw the money with the help of an HSA card.
Additionally, your family members can also contribute to this fund, even if you or your employer opened this account. You can replace your existing health insurance plan with a health savings account because a HSA has a lot of benefits.
Health Insurance Vs. Health Savings Account
We know that your parents would opt to have health insurance if given the choice between this and a health savings account. That’s because they don’t know all the benefits of opening a health savings account yet. But you can have a look at this table and decide what you want.
| Health Savings Account | Health Insurance Plan |
| No premiums needed | Premiums become more costly after every annual renewal period |
| Funds can be used for expensive medical treatments | Limit on medical expenses |
| Tax deduction on medical expenses | Tax deduction on medical expenses |
| Used for hospitalisation expenses, OPD clinics, pharmaceuticals, and diagnostic centres. | Used only for hospitalisation expenses. |
Health Savings Account Eligibility Criteria
The concept of a health savings account is comparatively new in India. So, before you start investing in a health savings account, kindly go through the eligibility criteria.
- You should be a permanent citizen of India
- You should be between 21 and 55 years of age.
- You should already have a savings account in your chosen bank, or you should have a recommendation to open a health savings account from your employer.
Conclusion
You can use your HSA amount for hospitalisation expenses and wellness chains, OPD clinics, pharmaceuticals, and diagnostic centres. In short, an HSA account offers you all the benefits of health insurance and even more, with a higher interest rate on the deposited amount.
