Is there a hotter topic these days than healthcare reform? There’s much debate, but no one can seem to agree on a solution that will work for everyone. Many people have lost their jobs, and with it, their health insurance. Working people are finding they can no longer afford health insurance premiums. Small businesses are faced with cutting health insurance benefits or cutting jobs.
What we don’t hear much about is what’s available now that can help defray the rising costs of health services and insurance premiums. What’s available is a Health Savings Account (HSA).
HSAs have become an important option for consumers and small businesses that are struggling to afford health care premiums and their rising popularity is turning them into a mainstream financial product that benefits businesses and employees, as well as the self-employed. “We didn’t see much of a market for them before, but we certainly do now,” said Robbin Hardee, VP Retail Banking and Branch Coordinator for Metairie Bank.
Resource Bank was one of the first banks on the northshore to offer HSAs, and according to Lindy Giambrone, Business Development Officer, Resource has seen HSA deposits more than double since 2005 from more than $1 million to more than $3 million.
According to AHIP, an industry group, there are currently eight million Americans covered by HSA-eligible insurance plans, an increase of more than 31 percent just since last year. By 2010 the Treasury Department estimates as many as 45 million Americans will be covered by HSA plans. Will you be one of them?
What is a Health Savings Account?
Only available since 2004, a Health Savings Account (HSA) is a tax-advantaged account you can use to cover your health care expenses if you have a qualified high-deductible health insurance plan. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
What Qualifies as a High-Deductible Plan?
You must have a high-deductible health plan to open an HSA. For 2009, a minimum deductible of $1,150 for single coverage and $2,300 for family coverage with a maximum out-of-pocket amount of $5,800 for single coverage and $11,600 for family coverage qualifies for a high-deductible plan.
How Much May be Contributed to an HSA?
“One of the primary misconceptions about HSAs is the dollar contribution limits. You cannot make unlimited contributions,” said Hollie Duet, Assistant Vice President, Deposit Operations for Statewide Bank, which has been offering HSAs for two and a half years.
Much like an IRA, the HSA is a tax-deferred savings account. For calendar year 2009, those with individual coverage may contribute $3,000 and those with family coverage can contribute up to $5,950. Contributions can be deducted from taxable income, instead of being lost forever to premiums. And if you’re over 55, you’re allowed to make “catch-up” contributions of an extra $1,000 per year until you’re eligible for Medicare.
“You do need to be careful not to over-contribute if you should change or lose your job mid-year,” said Fran Tynes, Marketing Manager for Resource Bank. There are specific rules for contributing, which can be found on the IRS or U.S. Treasury web sites.
Jamie Diamond, HSA Officer for Gulf Coast Bank & Trust said she’s seen more companies offering dual options for health insurance to their employees, with a full-benefits and a high-deductible option. Gulf Coast Bank & Trust also was one of the first banks on the northshore to offer HSAs in 2005 and is one of the few to offer both a savings option with a fixed interest rate and an investment option in mutual funds.
Many companies are finding they can deliver more benefit dollars directly to their employees by helping to fund HSA accounts instead of paying 100 percent of insurance dollars to carriers. “As time goes on, more companies are turning to high-deductible insurance plans to reduce their premiums and many of these companies are investing those savings in their employee’s HSA accounts,” said Hardee.
How Does an HSA Work?
Unlike other employer-based plans, such as Flexible Spending Accounts (FSAs) or Health Reimbursement Accounts (HRAs), that are “use it or lose it” every calendar year, the money you and your employer contribute to an HSA rolls over indefinitely and is owned by you. If you leave your current employer, you take your HSA account with you.
“The great thing about an HSA is if you’re young and healthy and don’t go to the doctor often, you can accumulate a lot of money,” said Hardee. “Those funds grow and grow and down the road they are there for you. It’s your money forever,” said Giambrone.
HSA funds can be used for qualified medical expenses at any time tax free. If you no longer have a high-deductible insurance plan, you can no longer make contributions, but may still use the money that is already in your HSA for qualified medical expenses.
What Happens to the Money After You Turn Age 65?
Even after you turn 65, you can continue to use your account tax-free for out-of-pocket medical expenses. When you enroll in Medicare, you can use it to pay Medicare premiums, deductibles, and co-pays. Once you turn 65 you can also use your account to pay for things other than medical expenses without penalty, although the amount withdrawn will be counted as taxable income. “The money you accumulate in your HSA can become a supplement to retirement,” said Diamond.
What Counts as a Qualified Medical Expense?
One of the best features of HSAs is that they allow more flexibility than traditional insurance and can be used to pay for things your insurance may not ordinarily cover, like dental, vision, orthodontia, and over-the-counter medicines. “The owner of the account has complete control and responsibility. It makes consumers more conscious of how they spend their money and gives them more choice,” said Tynes.
A big advantage of HSAs is that they can be used to pay for alternative and complementary medicine. People who use complementary therapies are often very health conscious and go to traditional physicians less often, so it makes little sense for them to pay high premiums for traditional coverage.
Qualified medical expenses have been partially defined by the IRS, but there is no definitive list. You can use HSA funds to pay for chiropractic care, acupuncture, hypnotherapy, or even a massage if your doctor recommends it for a specific medical reason. HSAs encourage and empower people to take more control over their own health and how they spend their healthcare dollars.
Is an HSA Right For Everyone?
Probably not. Some people may benefit more than others, which has been one of the criticisms of health savings accounts. If your employer does not offer health insurance benefits, or has shifted more of the cost to you by switching to a high-deductible insurance plan, then you may benefit from an HSA. If you are self-employed and can not afford the high premium costs of full-benefit insurance, then you may also benefit from an HSA.
A good starting point is to examine recent medical spending and calculate the amount that would have been spent on premiums and medical expenses under an HSA-qualified plan versus the actual amount spent in the same period for insurance premiums, co-pays, and co-insurance. “We always suggest you talk to your CPA before deciding on a health savings account,” said Giambrone.
“With all the discussion about healthcare reform, people are becoming more informed and are changing health plans to save money. As a result the popularity of HSAs is going up. We only see them becoming more popular in the future,” said Diamond.
If you think an HSA may be right for you, ask your employer, or check with your local bank. A variety of products are available including checking accounts with debit cards, savings accounts that earn interest, and mutual fund accounts. You may also want to check on fees associated with these accounts as some banks charge fees and others don’t.
One thing is certain, without some sort of healthcare reform, insurance and healthcare costs will likely continue to rise. Health savings accounts may not be the ultimate solution, but right now they’re one of the best options around.