Health Savings Account 101
Every year I compare health insurance plans to find the best deals as far as premiums vs. what the plan actually covers. If you don’t live in the U.S,. go read Daisy’s post on universal health care. If you do live in the U.S. , unless you are eligible for Medicare or state aid, you have two options; group or individual plans. Years ago, I looked forward to the day when my husband had a teaching job (because that’s what he wanted to do AND) I could join his group plan. I was very excited until I found out that it would cost $500 per month. This cost was for the family plan. It didn’t matter what size family. Whether it was spouse only or if you had nine children, it was $500. While that might work for a big family, having nine children for the insurance benefit was not a good idea. We now have one daughter, but $500 a month is still very expensive. The group coverage is good. There is only a $25 copay for doctor visits without a deductible, but we have no pre-existing conditions and rarely go to the doctor other than for annual physicals. Taking all that into consideration, I decided that an individual policy is the better option for us. After finding a knowledgeable agent, I decided on a health savings account eligible plan (HSA). Our current plan costs $165 per month, a savings of $4020 per year compared with the group plan. Below are the pros and cons of this type plan.
High Deductibles
The daughter and I currently carry a whopping $10,000 deductible. If we go to the doctor or need a prescription, it’s going to be an out of pocket payment. I’ve never come close to this deductible except for the year my daughter was born, and I had some complications. Unless there is some catastrophic emergency, we will probably never spend $4020 in medical costs. HSA’S generally pay 100% if you do meet your deductible, so if we ever did have some horrible injury or illness, we would only have to pay $10,000 up to the plan maximum. This amount will not bankrupt us. With the premium savings, the HSA is the better option for us.
Tax Deductions
If you have an HSA eligible insurance plan, you need to set up a health savings account. Many local and online banks offer these, and you open them as you would a regular account. You get a debit card and checks if you wish (if you need to learn how to write a check see Lance at Money Life and More). For 2012, you may contribute a maximum of $3100 for an individual and $6250 for a family plan, with a $1000 catch up contribution possible if you are over 55. This money grows tax free (it isn’t growing much with the current interest rates, but still!) and can be used anytime for qualified medical expenses. Any money deposited into an HSA account is also deducted from your gross income. I’m bad at math, so let’s use a 25% income bracket for example. If you contribute the maximum amount, you save over $1500 in taxes. We usually just put money into our account if we know we are going to have a medical bill. The HSA did save us at tax time last year. We were just over the income level to deduct my husband’s tuition expenses for his master’s degree. Our accountant found that if we put $2000 into our HSA, we would qualify. We went from owing $1200 to getting $400 back, so we made an extra $1600 just by switching money from savings to the HSA account. Obviously, the lower your tax bracket, the less you would save.
Flexibility
You can use HSA money on more than doctor visits and prescriptions. You can pay for a variety of health care related expenses like dental care, chiropractic care, eye exams, glasses, and contacts :). You can even use HSA money for over the counter supplements or medicines IF your doctor gives you a prescription for those. Unlike a flexible spending account, you don’t lose your money at the end of the year. It stays in your account until you spend it. You have to be careful, though. If you spend HSA money on anything other than approved medical expenses, there is a 10% penalty.
If you go to the doctor multiple times per year, have a pre-existing condition, or ride motorcycles at high speed without a helmet, HSA plans might not be for you, or you might not be eligible. Critics of this type plan make the argument that only healthy people qualify, thus driving up the costs for the unhealthy. We work really hard at staying healthy, so hopefully we can continue to keep our HSA plan unless something better comes along. If you are in good health and only need a major medical plan, this can be a great way to save some money.
What health plan do you have? Have you saved money with a HSA? You really don’t ride motorcycles without a helmet do you?
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Think about purchasing short term disability and hospital indemnity before baby number two is conceived. You can fill much of the deductible hole at a fraction of the cost of using your husband plan at work.
Yeah, we don’t even have health insurance or a HSA. My husband has health insurance through his work, but it’s really, really crappy and doesn’t cover barely anything. To add us on to his health insurance, it would cost about $500 a month—and wouldn’t really do us any good.
I’m hoping to create some side income to purchase decent health insurance in the future, it’s just taking longer than I planned. Great post, Kim. 🙂
Just don’t drop anything heavy on your foot or shoot yourself with a nail gun while moving or fixing up the new house!