Q: What is an H.S.A.? How can it help me?
An H.S.A. is a Health Savings Account. This account could be described as a “Health IRA.”
It is a tax-favored savings account that allows you to pay for qualified medical expenses with a (federal) tax-free dollar. The IRS allows you to open such an account if you have a “Qualified High Deductible Health Plan.”
Simply, the idea is to use the insurance plan to protect you from catastrophic loss and the savings account to pay your other medical expenses. Funds are deposited into the separate savings account and can be withdrawn to pay qualified medical expenses. Many of the accounts come with a debit card. So when you go to the doctor, you hand them your insurance card and your debit card. If it is a PPO plan, the claim will be billed to your insurer. You will be provided the discounted rate and the money will be withdrawn from your savings account.
One word of caution: Watch for your insurance company “Explanation of Benefits” (EOB) to be sure the claim was billed and that you only paid the negotiated rate that the insurer allowed.
The beauty of this account is that it keeps the money in your pocket, not the insurance company’s pocket. The money is available to you, but unlike a Cafeteria-125 Plan there is NO “use it or lose it” feature. In fact the money can accumulate and be used at age 65 to pay Medicare Part B premiums or as a supplement to your retirement plan.
Should you use the money for other than medical expenses, you will pay ordinary income tax and a 10 percent penalty to the IRS. Note that California does not recognize H.S.A. yet, so the deposit is not deductible for State purposes. However, for Federal it is an “above the line” deduction. You do not have to itemize to receive the deduction.
The contribution limits for 2008 for an individual is $2,900, regardless of your plan deductible, plus an additional $900 if you are older than age 55. If the plan has family coverage, the limit is $5,900.
These accounts can be opened at local banks. North Valley Bank, Premier West and Redding Bank of Commerce offer these accounts. If you grow the account and would like investment capabilities “www.hsabank.com/” actually offers brokerage accounts that allow you to buy mutual funds with the money.
This approach can help you control your health care costs and make you a better consumer of health care. For example, an individual age 45 may purchase a $750 deductible health plan from Blue Shield for $451 per month. This plan would pay 7o percent of expenses after the deductible and the maximum out-of-pocket cost to the person would be about $5,000 in a calendar year. Yet if they purchased the $4,000 H.S.A. Eligible plan, all services are covered 100 percent after the deductible. The premium cost is $162 monthly. This is a savings of $3,468 per year ($289 x 12). This is almost enough to cover the entire deductible.
So this approach can be very sensible. The other feature is that it puts the consumer back in the process. That’s why they are often called “Consumer Driven Health Plans.” The industry has found that consumers are more attentive to the costs and ask more questions when they are clearly aware that the dollars they are spending are their own.
My favorite analogy is this. If you were to go to Costco and put things in your basket AND other people put things in your basket and you were expected to pay whatever it totaled at the register, you would not do that. But we do it in health care every day. We are often unaware of the costs or the reason for the services we consume. This approach puts us back in the process.
Margaret R. Beck owns and operates Affiliated Benefit Services at 1348 Market St., Suite 208 in Redding where she is a licensed CLU (chartered life underwriter), ChFC (chartered financial consultant) and CEBS (certified employee benefit specialist). She may be reached at (530) 225-8583 and mailto:mrb1348@gmail.com
