Health care costs are escalating to an all time high for many reasons, including new medical technologies that increase life expectancy, medications that increase quality of life, increasing number of patients with chronic illness, over-utilization of health care and administrative waste. Everyone is challenged by health coverage rates increases, and is searching for reasonable ways to control costs. Changes in the practice of medicine, as well as consumer preferences, also affect the way health care dollars are assigned and spent.
The implementation of a Health Savings Account eliminates any type of Co-pays, Service Deductibles and has only one family deductible vs. multiple family deductibles like your current policy. This has an advantage due to the entire family accumulating to one deductible (and possibly co-insurance). Once the deductible and co-insurance maximums are met it’s 100% for the remainder of the year (Calendar or policy year, read your policy or check with your Health Insurance Specialist) for the entire family.
2008 IRS HSA requirements for an HSA:
Annual HDHP Deductibles
Minimum’s: Single $1,100 and Family $2,200.
Maximum OOP (Out-of-Pocket) Single $5,600 and Family $11,200.
Maximum HSA Yearly Contributions:
Single $2,900 and Family $5,800
NOTE: Not all plans are HSA qualified. This is typically a High Deductible Health Plan (HDHP) that is filled with the department of insurance meeting all the mandated requirements set in place to be HSA qualified. Check with your health advisor to make sure you find one that is qualified in addition to the things listed previously in this report.
That’s not even the best part. Everyone needs Health Insurance to cover medical expenses, future as well as current. The best part is you get a tax break of the amount you put into your account equivalent to your tax bracket. Another words, the more you make, the more you can deduct from you over all taxes. This concept is very similar to an IRA. Now if you are self-employed, you know you have the ability to deduct your health insurance premiums. Thus, bringing your over all Health Insurance costs down to a more manageable level or in some cases get it for FREE, or pretty close to it.
Here is an example: Family of 4, 40 year old male non-smoker, 38 year old female non-smoker and 2 kids, paying $3,600 per year. For a family the max you can contribute to your HSA account is $5,800 for the year. If you were in a 30% tax bracket (most who read this will be in a higher one) this is giving you a tax benefit of $1,740.00 for the year for your contributions. If you are self-employed and deducting the premiums as well this will give you an additional $1,080.00 per year. This brings your total yearly savings to $2,820. Your net cost on paying $3,600 on your premium is $780.00 per year for the entire family. If you break it down it would be $65.00 per month, or $2.17 per day. That’s the cost of a can of pop and chips per day. Wouldn’t you say that’s affordable? There is no excuse why your family shouldn’t be without insurance.
Now take a single male, Johnny, striking it on his own on his Million dollar idea. Let’s say he is 31 years old non-smoker. His yearly premium is $1,020. The max an individual can contribute to your account is $2,900. This will give him a deduction of $870.00 on his contribution and $306.00 from his health insurance, for a total savings of $1,176 per year. Johnny’s net expenses is $-156.00. In other words, the government is allowing him to deduct a qualified tax expense and get his Health Insurance for FREE! Now he can run his business without the fear of losing it if something happened to him and he was stuck with the medical bills.
But what about my co-pay?
Believe it or not, I just saved you approx. $2,800 for the year on your family’s health insurance and someone is worried about the Co-pay. “But, what if my doctor visit is $1,000 or my lab work was $2,000.” If your doctor visit or lab work is that much, either you have something serious going on or you have to find a doctor that isn’t over charging for services. Believe it or not people have said this. Most people have no idea what doctors charge. The average adult goes to the doctor less than 2 times per year (unless their employer is paying for it giving you incentive to use it by not seeing what it truly cost for those benefits. Children may go a few more times than the adults. The average doctor visit in America is approximately $100-120 per visit, depending on where you live. If we used $100.00 for example, if the parents go 2 times each and the kids go 4 each, that’s only $1,200 for the year. Keep in mind, this is being deducted from your calendar deductible. Also, if you really needed to you can use a portion of the $5,800 that you contributed to your HSA account.
MY BEST ADVICE: Fully fund your account every year. DO NOT wait until April 15th, tax day, to contribute for the previous year’s tax return (the government allows you contribute up to tax day for the previous year). The reason for this is you are missing out on your TAX-FREE growth of your account due to it being interest bearing.
And you say health insurance isn’t affordable?
Now, let’s not get a head of ourselves here with the savings we have here. You may have saved over all monthly premium compared to your previous plan by switching to an HSA. I wouldn’t recommend going out and buy a new car, new fishing boat or spend it on a luxury vacation. I would recommend investing it in your family.
First, take a portion of the savings and buy yourself and your spouse what’s called a Critical Illness insurance policy. This a policy that writes you a check for the amount you choose based on what you can afford, not tied to your income when diagnosed with a critical illness such as cancer, stroke or heart attack. Wouldn’t it be better to pay off your house at a time like this instead of losing your house? Granted, even on the HSA plan you cannot deduct Critical Illness Insurance or Life Insurance premiums for tax purposes or use your Account to pay for the premiums. More important than tax savings you are protecting your income and your assets. Your income and assets are what supports your family’s lifestyle. The remaining premium savings should go towards other long term investments such as Long Term Care, college funding, IRA or other Retirement Portfolio and whatever else you need to help your family to live more comfortable and secure.
Posted in Health Insurance Tagged: Health Insurance
