By Sue Shekut, Owner, Working Well Massage, Licensed Massage Therapist, Certified Wellness Coach, ACSM Personal Trainer
Healthcare reform via the U.S. government may take a while. In the meantime, want a great way to beat the high cost of health care, save money on your taxes and earn interest on unspent health savings? Look into an Health Savings Account.
What is an Health Savings Account (HSA)?
According to the US. Department of the Treasury, “Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.” Read more on the US Dept of the Treasure website here.
Everything financeblog.com does a great job of explaining HSA’s:
HSAs are tax-free accounts tied to an insurance policy with a high deductible of $1,250 for an individual and $2,500 for a family. After the deductible is reached, policy holders receive comprehensive coverage.
To ease the burden of those out-of-pocket costs, participants can contribute, pre-tax, up to $3050 for an individual (in 2010) and $6,150 (in 2010) for a family into an HSA. Withdrawals from HSAs are tax-free as long as they are used for medical purposes.
Unspent HSA money automatically rolls year to year and those funds can either earn interest or be invested into participating mutual funds for greater returns – potentially building a tax-free nest egg for healthcare costs. Consider it the 401(k) plan for healthcare.
Victoria Craig Bunce, director of research and policy at the Council for Affordable Health Insurance, said employers can save between 25 percent and 30 percent on health premiums by switching to an HSA. Those savings usually translate into lower premiums for employees – savings that employees can use to maximize their health savings accounts.
A study by Mellon Human Resources and Investor Solutions in May indicated that 7 percent of the over 360 employers surveyed already offer HSA plans to employees and 32 percent plan to offer them in 2006.
While it sounds like a win-win for both employers and employees, it’s still a hard sell for some companies. With some current healthcare deductibles as low as $150, employees may get put off by HSA’s much higher ones. And there’s something disconcerting about paying the entire cost of a doctor’s visit up-front, rather than the standard $15 or $20 co-pay.”
Setting up an HSA is as easy as 1,2 3!
1. Check with your employer or if you are self employed, your insurance broker to see if you qualify for a high deductible health insurance plan. If so, select the one that best fits you.
2. Open an HSA account at a local bank or credit union.
3. Deposit funds into your HSA. Make sure you follow IRS rules for limitations on contributions. ($3050 for individuals and $6150 for families as of 2010).
4. Use your HSA debit card or checks to pay copay medical bills, preventative care not covered by your insurance (including dental and vision if need be) and for some alternative health care needs (Acupuncture, chiropractic, some massage and physical therapy if for a medical condition or injury).
5. Keep your receipts for medical claims.
6. At the end of the year, take your receipts and HSA account records to your accountant. You should not pay taxes on any amount you put into your HSA or take out for medical reimbursement reasons.
Hint: If you open an HSA account at a credit union, you will earn more interest on your savings than you will at a bank. Why? Because credit unions are not-for-profits and thus do not pay taxes so they can pass more savings on to you!
Some fun facts about HSA’s from the Wall Street Journal:
• About 40% of tax filers with HSAs earn under $60,000, according to the IRS. The Employee Benefit Research Institute reports that 4% of adults with private insurance have an HSA this year—up from 1% in 2006—and about 9% are enrolled in some form of consumer-directed health plan. It also found that beneficiaries are evenly split between those with health problems and those without.
• The Blue Cross Blue Shield Association, whose members dominate the HSA market, says that enrollees are more likely than those with traditional insurance to be better consumers. They’re more likely to track expenses (63% to 43%), save for the future (47% to 18%), and search for information on physician quality (20% to 14%). They’re also more likely to participate and see results from wellness programs like weight loss, fitness and smoking cessation. This makes intuitive sense: They’ve got skin directly in the game.
• David Goldhill, a media executive, recently wrote in the Atlantic Monthly that if a 22-year-old starts at his company today earning $30,000 and health costs grow at 3%, by the time he retires he’ll have paid out $1.77 million in premiums, lower wages, out-of-pocket costs and both sides of the Medicare payroll tax.
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