Learn The Facts About HSA Plans…
Most companies or individuals do not understand the benefits of the fairly new HSA accounts created to help offset the rising costs of health care. Many brokers do not sell the plans because of lack of understanding or lower commissions. What is an HSA? Health Savings Account, it is a personal account set up by an employer, of which both the employer and the employee can contribute up to the maximum amount allowed for 2009: $3000 single and $5950 and an additional $1,000 over age 55 per calendar year (indexed to inflation). Unlike HRA or Flex plans, your money rolls over each year and it goes with you if you leave your job. The plan is not popular with the Democratic Party because their view it is a tax break for the wealthy. I agree it is employer driven, however-Everybody benefits from HSA plans. As an employer, premiums, contributions, to employees, FICA tax, are all tax savings, offering employees an affordable health care solution is priceless.
If the employer funds the HSA investment account for an employee (for whatever amount they wish) it is a tax deduction for the company, premiums are pre-tax so FICA tax is saved, the employees receive the same tax advantage, any portion of the premium they pay is also tax deductible on a pre-tax basis from dollar one (the 2% of income does not apply), most companies offer:
- Prescription drug discounts,
- Free well visits once a year,
- OBGYN are generally just a co-pay,
- Generally most items you purchase over the counter for prescriptions, aspirin, eyeglasses, orthodontia, are tax deductible (Companies provide a list of allowable deductions for IRS).
- HMO’s, PPO’s, POS plans or cafeteria are offered with HSA’s
- Any portion you as an individual contribute to your HSA investment account grows tax-free in an array of investment selections (if you reach a certain dollar amount contribution-generally around $2000), and most companies offer on-line services that you can see what your next prescription or services will cost you.
- Visa debit and or convenient checks available for access
- On-line tax reporting for IRS for accounting purposes with carrier selected
The real difference: A high deductible out of pocket is one of the IRS requirements, most carriers put that at $1500 single, $4000 family, (your premiums are generally lower than traditional health care), what that means is the first $1500 is on you, then the plan resorts to regular co-pays and prescription co-pays (if you spent $1500 you now have a $1500 deduction). The shock comes when you pick up that first prescription that used to be $35 and now it is $250 dollars. The average of spending is around $1,000 per year per individual. You need to check on the carrier selected if they count from dollar one prescription costs towards your out of pocket deductible. Add up your average costs for the drugs you use and call the pharmacy and ask them what it would be under the selected carrier, you can then set your budget goals or have your employer contribute some dollars to your investment account.
Lets say you go to the hospital for a major procedure like open heart surgery, normally you pay your out of pocket deductible (1,000, 2500, etc which is not tax deductible unless you reach 2% of AGI and anything over that you can deduct) the insurance pays 80% and you are responsible for 20%-as my six year old would say-that's a really big number.
Under the HSA, you would pay the $1500, and then $300 a day for 5 days in the hospital or $3000 ($6,000) out of network total (which is now a tax deduction). However, that is your limit of your liability-$3000/$6,000, everything then resorts back to normal co-pays for drugs etc. Is essence, you are insuring catastrophic vs. incidental.
Everybody can win with an HSA; one of the biggest causes of bankruptcy is still from medical bills.
They’re a few rules to abide by that IRS has established. It may be worth talking to an expert on HSA plans to see if it matches your companies needs. If you are retired with passive income you can also qualify for an HSA.
For more information on HSA plans, go to: http://www.irs.gov/publications/p969/index.html
Frank J. Eberhart, CEP, RFC
www.bookworm.tv
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