Have You Considered a Health Savings Account?

Health Savings Accounts (HSAs) have been around since 2004 and present a viable alternative to traditional medical insurance coverage.  Especially given the ever-escalating cost of health insurance.

HSAs work as follows:

1. Enroll in what is called a "High Deductible Health Plan" (HDHP).  A HDHP is a health insurance plan with, what else...a "high" deductible.  What is considered high?  The Government says at least $1100 for single coverage and $2200 for family coverage.  The annual maximum "out-of-pocket" for a HDHP cannot exceed $5600 (single) or $11,000 (family) in 2008. 

2. Establish a separate HSA, usually through a bank, brokerage or other approved HSA provider.  Health insurance providers usually are linked to an HSA provider; for example, Blue Cross currently offers HDHPs that offer easy access to Chase or Mellon Bank.

3. Fund the HSA by depositing money into the account.  In 2008, you can contribute up to $2900 (single) or $5800 (family) into an HSA.  You have all year to contribute but you must have money in the account prior to use if for healthcare expenses.

4. Use the HSA to pay for your out-of-pocket healthcare expenses, including medical, dental, prescriptions, etc.  You can usually pay using a debit card or checkwriting option.

5. At the end of the year, take a Federal TAX DEDUCTION for your HSA contributions!  Yes, HSA contributions reduce your Adjusted Gross Income on your tax return.  The bad news:  California law does not conform to Federal law on this and thus you will not get a California tax deduction for HSA contributions.  (Come on, Arnold, let's work on this discrepancy!)

Summary of HSA benefits:

1. HSA contributions are tax deductible on your Federal tax return (but not California). 

2. Your insurance premiums on a HDHPs will usually be lower than on most traditional health insurance plans.  Thus, the savings can be directed towards your HSA account.

3. Any money remaining in an HSA account that has not been used for healthcare can be carried forward indefinitely.  (This is quite different than Flexible Spending Accounts, which you must use each year or lose.)  In fact, you can keep the money in the account until you retire and use it for Medicare premiums and deductibles. 

4. HSA accounts can grow and accumulate over time and earn income.  Many HSAs allow investments in mutual funds when your balance reaches a certain threshold.

More and more employers are offering HSAs and HSAs are also available through individual insurance policies.  For more information, visit www.hsainsider.com.