Is An HSA Right For You?

A Health Savings Account is a great way to reduce health insurance premiums for ideal candidates.

By Robert Leimena, Emma L. Peterson and ClinicalPosters.com staff

HSA Puts You in Control

HEALTH INSURANCE As Health Savings Accounts grow in popularity, there is growing fear among those who want to nationalize healthcare that they will not be able to put the cat (or piggy) back in the bag. It is not certain what changes to HSA will occur as healthcare reform continues through 2014. For example, insurance providers will be expected, under the Affordable Care Act, to offer routine preventative medical exams at no cost. [1, 2] These are normally paid by patients insured with HSAs in exchange for reduced monthly premiums. Millions of Americans are already covered by HSA plans. They have billions of dollars invested to cover future medical expenses. So the HSA is likely to remain and get better.

HSAs are ideally suited for individuals who rarely get sick, want to reduce health insurance premiums and save for retirement. A higher fee is generally paid for doctor visits and lab tests with a annual maximum. This offers reasonable protection for catastrophic illness.

At age 50, the amount of annual doctor visits and tests increases. This may make it difficult for HSA contributions to grow, though there are catch-up contribution incentives. Those with chronic medical conditions similarly may not wish to begin an HSA. On the other hand, those who establish one in their youth may benefit should they acquire a chronic health condition later in life. One downside is that youth may forego visits in favor of nest egg growth. Eschewing health care is already a concern among young men. Less than 63% of American men under the age of 30 have visited a primary-care physician in the past year. [3]

Think of an HSA as an IRA with the added benefit of withdrawals for medical expenses incurred throughout the year. The balance of annual deposits is not lost. It continues to accumulate without limit until age 65, when the HSA performs like a health-optimized IRA. [4]

With a high-deductible health insurance plan, you can invest tax-free money in a Health Savings Account. You get to choose the type of investment — anything from savings accounts or money market funds, to a full brokerage house. If you invest wisely, you could have well over $500,000 in the account when you retire. You will be able to use that money to pay for your healthcare in whatever way you please, tax free. You can go to the best surgeons, pay for plastic surgery, orthodontics or LASIK eye correction. Whoever offers you the service you want with the best combination of quality and price should get your business. And since you are the one paying, it will be completely your choice. You have healthcare freedom.

The Health Plan That Pays You Back

For many young people in prime health, years may go by without requiring major medical expenses. Yet year after year, typical health insurance premiums are paid without a rebate or refund. For these people, an HSA could be a dream come true. Monthly payments are reduced about 40 to 50 percent. Set up an automatic payment between $100 to $200 per month into an approved Health Savings Account to build up funds for retirement.

2010-2011 IRS Limits
Single Plan Family Plan
Minimum Deductible $1,200 $2,400
Maximum Out-of-Pocket $5,950 $11,900
Maximum Contribution Limit $3,050 $6,150
Catch-up Contribution (55+) $1,000 $1,000

Select an HSA health plan with a maximum out-of-pocket expense as little as the minimum deductible (higher premium) or as high as the maximum out-of-pocket expense (lower premium). The maximum contribution limit is the amount of tax deductible funds that can be deposited annually. A one-time rollover from an IRA to an HSA is allowed up to the annual HSA contribution maximum. Contact your tax advisor to discuss the benefits and tax reporting requirements.

Every dollar contributed into your HSA accounts is deducted from your taxable earnings in the identical manner as contributions into a standard IRA account–regardless of regardless of whether you invest it or just save it. Interest and investment earnings in a HSA accumulate tax-deferred, just like a conventional IRA. Unlike an IRA, withdrawals are tax-FREE when employed to pay qualifying health-related bills. In numerous scenarios, new account holders are ready to nearly fully fund their HSA with money saved on premiums from a prior, greater priced program. By stashing all or most of individuals financial savings into an HSA, the accounts holder realizes instant, extra cost savings in the form of reduced taxes.

You must have a correctly qualified high-deductible insurance policy in place first before you can open a Health Savings Account. One of the biggest misconceptions about HSA ideas is that any insurance policy with a high deductible will qualify the policyholder to establish an HSA accounts. IRS regulations, however, are quite specific. Not just any policy with a so-called "high deductible" will suffice. It is important to be certain that you are insured under a properly qualified policy. Your best bet is to work with a qualified and duly licensed health insurance broker who is experienced in marketing properly qualified HSA ideas.

Take-away points: For some, an HSA can be the health insurance that pays pays back. Employed people can have regular tax-free deduction from paycheck. Self-emloyed can make regular tax-free contributions. Savings accumulate to age 65. Higher medical co-pays are required so those with chronic health conditions may not be able to accumulate savings. Premiums may increase as a result of Affordable Health Act which will require not co-pay for preventative health exams.

References
  1. Co-payments for many preventive medical services for most workers are about to disappear. LATimes.com
  2. Heath Reform Source. HealthReform.org
  3. Younger Men Not Going to the Doctor Enough, Survey Shows. Everyday Health
  4. Common Questions on HSAs. HSA Insights