A few years ago Congress made “Health Savings Accounts”
permanent. Previously it was a test program called Medical Savings Accounts,
and they were only available to the self-employed. Now the program is permanent
and it is expanded to benefit all Americans under 65, not just the
self-employed. However, to qualify for a tax-free Health Savings Account (HSA),
you must acquire a high-deductible policy that does NOT have co-pay benefits
for doctor visits or prescriptions
Is this the best way to own health
insurance? Let’s look at the numbers.
Let’s say you and you and your spouse are
both 50 years old. (If you are younger, your premiums will be less.) If you purchase a
traditional co-pay plan with a $1000 deductible at the hospital, your total
combined monthly premium would be $695. You can use your co-pay right away for doctor
visits and prescriptions; you do not have to meet your deductible first.
Now, staying with the same insurance company,
if instead of a co-pay plan let’s say you opt for the HSA (Health Savings
Account) high deductible plan. What happens? Yes, you lose your co-pay and your
deductible climbs to $5000. This means your medical expenses are paid by you
and accumulate toward your deductible. Once the deductible is met, the plan
pays 100% of your eligible expenses for that year, including doctor visits and
prescriptions. However, your total
combined premium drops to $384 per month.
This is a savings of $3700 per year in premium! What if
you took all or part of this $3700 savings and placed it in an HSA account? You
would instantly get a tax deduction for the full amount of your deposit, and the
account grows tax deferred.
Once
you acquire a policy that is “HSA Qualified”, where do you open your tax-free
HSA account? It does not have to be through the same insurance company that
sold you the policy, but can be with the financial institution of your choice. As one example out of many, just do an
internet search on “Vanguard Mutual Funds Health Savings Accounts.”
You can make a new HSA contribution
every year with no upper limit on how high your account value can grow. The
only limit is how much you can contribute in a given year, which is $2900 for
an individual and $5800 for a family. Money dispersed from this account, when
used for medical and dental expenses, is tax free. What happens when you turn 65 and go on Medicare?
You can convert your HSA account to an IRA, or let it stay in the HSA for
medical expenses during your retirement.
Another attractive feature of HSA
accounts is 100% deductibility for long-term care insurance. Yes, your entire
LTC premium can be paid from your tax free HSA account. Dental , prescriptions, doctor visits
including chiropractors and naturopaths, plus glasses -- all of these items and
many more are eligible. It just requires a new way of thinking about health
insurance – a willingness to give up coverage for the little expenses in favor
of tax benefits and lower premiums.
However, Health Savings Accounts may not work well for a young family,
where frequent doctor visits are the norm. For everyone else, they deserve a
very close look.
Tom Russell is a health insurance broker
with fifteen years of service to Arizona residents. He is a Health Savings
Account (HSA) Health Plan Specialist. He can be reached at (928) 474-1233 or
(800) 745-3570 or Online at www.CompareYourHealthPlan.com Email: TR@npgcable.com
This Article in PDF format: ArizonaHSA.pdf
