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  • Health Savings vs. Health Insurance Policy

    Health insurance or mediclaim in India are one of the most popular insurance products in India after life cover products. It is inescapably necessary because people may not have their own homes or cars that need insurance but they always have their health. However, in countries such as USA and South Africa there is another health care product category which is known as the health savings account. This is comparatively a newer concept in India and will take time for people to realize the opportunities it has in the Indian market. But you already have the option of health insurance, why would one need a health savings account?

    On the other hand, people in India are accustomed to saving money for medical emergencies. This amount generally, is saved in the regular savings bank account. So, let us compare regular health insurance with Health Savings fund first.

    Health Insurance Plan vs. Health Savings:

    We first pitch Health Savings in the form of money saved by people in their bank account against health insurance, giving you first an idea of, which one is better:

    Money Movement:

    When you are saving money in the savings account, as your health savings for medical emergencies, the money is staying in your account, without adding any advantage of investment for you. When it comes to health insurance, the money is being investment, if you take plans accordingly and also you get added features and benefits. You do however earn a stable interest on your savings which is generally around 8%.

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    Taxation:

    Money saved for medical emergencies in your bank account will attract taxation, which means both the amount saved and the interest earned. However, in the case of health insurance, you can avail tax deduction on your health insurance.

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    Convenience and Stability:

    As of 2016, provisions and plans will be made for people to invest in health insurance through monthly, quarterly, half yearly installments, as against the usual annual installments. This will make health insurance a mandatory savings habit for your well-being. You also pay the premiums once a year or whenever you choose to, whereas you have no discipline when saving for medical emergencies in the bank account. There are very high chances that the money will be used for other emergencies.

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    Amount Accessible:

    The amount that can be actually used for your health insurance claim is much larger than you actually invest in it. On the other hand, you can never afford to save enough for medical emergencies in the bank account, that too without any benefits.

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    Utility of Savings:

    The amount that people save on a health insurance have very restricted usage in terms of the type of medical expenditure, emergency or disease. There are exclusions of the applicability of the health insurance claim. However, in the case of saving money in your bank account can be used any way people want, because at the end of the day it’s their own money being managed by themselves.

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    Cashless Benefits:

    Mediclaim come with cashless benefits i.e. you get to admit the insured in the hospital for certain medical emergencies without paying anything prior to admission, so that the urgency can be taken care of. When you simply save for health in a savings account, you do not get such benefits.

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    Hence, we can see that investing in health insurance is a better idea.

    But what about this new product known as a health savings account?

    Health Insurance or Health Savings Account: Which is More Beneficial?

    For people who are not aware of health savings account, should first get an idea of what a health savings account is. It is a savings account that is designated for medical requirements of the individual. This account is premium based. A part of the premium is used for the insurance which covers an individual just as a medical insurance does. The costs that are not covered, but still need to be paid can be used from the other part of the accumulated premium. The money if withdrawn for non-medical expenditure will become taxable.

    But there is more to this product and the best way to answer the sole question of which one is better is to pitch their advantages and disadvantages.

    Quantum of Options:

    In India, as mentioned before health savings is a far newer concept as compared to health insurance. Keeping that in mind, health insurance is a far more developed spectrum in India and hence provides far more product opportunities and choices as compared to the savings account.

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    More Coverage:

    When a person chooses their health insurance plan, they have to first see what the plan covers and what it does not. Most health insurance products do not cover several diseases and have a timeline restriction. This is where a health insurance product thrives because one can simply use the savings part of their account for any sort medical emergencies and requirements. Also, health insurance products come with purchasable riders, which are also claimable under restricted conditions and terms. So, the flexibility and higher coverage of a health savings account is evident.

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    Evolution of the Product:

    As mentioned earlier, health insurance products in India have already gone through the evolutionary phase and hence the market is competitive. People take coverage from 2 health insurances in India. One that is covered by their employer and the other one that is a personal investment.

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    Tax Benefits:

    By now people are aware that health insurance premiums also fall under tax savings instruments, but only a part of it. On the other hand health savings accounts are non-taxable savings account as long as the money withdrawn is used for medical or health requirements.

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    Pricing in India:

    The policyholder Insurer has to bear risk in the health insurance savings account investment risk in case there is a component that is a guaranteed with the fund. In such as case the guarantee cost is shared with the premium. Then there is also the factor that the profit distribution from the unit-links have to be distributed and only a little earning comes into the hand of the health savings account in such a case. Therefore the pricing of HSAs are still going through a development phase which in the case of health insurance has already been taken care of.

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    Availability of Funds:

    Finally, health insurance ensures that when claimed there is a lump sum that can be claimed whereas in the case of HSAs the money that one has access to is only the accumulated amount which may not be sufficient to cover the costs at the time.

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    Based on the above factors, it may seem that a health insurance plan is more beneficial, but in the long run if you want to save and yet make sure that you have complete health or medical coverage a health savings account might be a better option in a few years. In the long run, we can see that health insurance is the best route.

    GST rate of 18% applicable for all financial services effective July 1, 2017.

    Disclaimer: Premiums may vary depending upon factors like age, location and prevailing taxes/GST.

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