Health Savings Account

[MooreBonds]

I saw a post in a recent thread about the pitiful choices in Health Savings Accounts that the health insurance company was offering. I thought I would pass along some great info to those who might be interested in the new Health Savings Account...

(NOTE: You do NOT have to keep a HSA account with the company you buy your health insurance policy with. There are 40 "trustees" that will hold your account for you.)

To those who don't know about HSAs: if you have 'high deductible health insurance' (deductibles from $1,000 to $10,000 for an individual policy...forgot what they are for families), you can put an amount equal to the lesser of your deductible or $2,600 for an indivdual (I think $5,200 for a family) into an account, DEDUCT IT FROM YOUR TAXABLE INCOME, and invest it. Plus, if you're over 55, there's a catch-up provision to allow you to contribute an additional $500/year. All earnings are tax-free, and all distributions from your account are tax-free if used for qualifying medical expenses (and the list is fairly generous on what is considered "qualified").

The downfall: any money withdrawn when you don't have 'qualified medical expenses' is taxed at your ordinary income tax rates AND you are socked with a 10% penalty.

An upside: you do not have to itemize medical expenses on your taxes in order to receive the benefits of withdrawing from an HSA. Also, any money you have in the account after you turn 65 can be withdrawn for ANY expense without the 10% penalty. The only catch is that non-qualified medical expense withdrawls after 65 are taxed at ordinary income tax rates. However, since you deducted your contributions before, it's like having a second IRA that you can contribute to and deduct from your taxes WITHOUT having any income limits.

HSA Advisor is an EXCELLENT resource for HSA info (no registration necessary). Not only can you get all the details, but they even list over 40 companies that offer the HSA. Their website is http://hsainsider.com/

Now you might naturally ask "What kind of fees are there associated with this?" That's the bad thing - surprisingly, companies like E-Trade/Ameritrade/large banks do NOT offer them as of today. Also, most places charge a $25 account setup fee, and monthly fees ranging from $1 to $5/month, sometimes reduced if you meet certain account minimums (anywhere from $500 to $3,000).

However, there are some good account choices which I have learned after some thorough research.

I'll spare the nitty gritty and offer my 'top 2' recommendations after scouring the various listings on hsainsider.com:

If you only want to build up the cash in a MM account and use the HSA to pay for expenses:
Peter's "Top Pick": Town Bank ($25 setup fee, $10 account closing fee, NO MONTHLY FEES, average interest).

If you want to invest your contributions in stocks/bonds/equities, the BEST choice is HSABank.com. They open your account with Fiserv, which is an on-line deep discounter. Their commissions are only $20, and they offer access to virtually all no-load funds out there, as well as individual stocks and bonds. The ONLY drawback is that they will sock you with a $3.50 monthly fee if you have both a MM account (required to keep your HSA) and an investment account. if you keep $3,000 dead in your MM account, they only charge you $1.25/month (to keep your investment account), but if you can earn just 1% off of your investment, it pays to go ahead and pay the extra $25 in annual fees to keep the extra $2,800 invested (after keeping $200 minimum in your MM).


I have an Excel spreadsheet listing all 40 of the trustees that HSAInsider.com lists - I can e-mail you a copy if you want to look at all of them side-by-side.

--Peter

 

[Michael]

Thank you for the information Peter.

 

[Lin Smith]

I
To those who don't know about HSAs: if you have 'high deductible health insurance' (deductibles from $1,000 to $10,000 for an individual policy...forgot what they are for families),

I think individual is $5000. I have $5500 out of pocket max and don't qualify. How much sense does that make?



--Peter

 

[Tadpole]

FSAs did not work. Who wants to save for health care expense and, because they were fairly healthy during that year, lose the funds at the end of the year? HSAs carry over between years, are set up by insurance companies, are contracted to financial institutions, belong to the individual and can be moved to a new provider. One saves more and more health care related money as long as you do not need it for health care. Whether this is a good thing depends on whether you are young or old, healthy or not, an insurer or the insured, an employer or an employee. Mike Causey has a short comment on the effect of this on insurance pools at http://www.wtop2.com/index.php?sid=126260&nid=22&template=story_print.

An example is the Federal Government non-profit GEHA. In 2005 an HSA (GEHA High Deductible Plan) was added. Coincidentally, although the average increase for plans offered to government employees only rose by 7.9%, the older GEHA plans went up substantially more than this (18% for the high plan). The HSA puts $60 single, $120 family into the savings account. In a year, this amounts to $760/$1440 in a plan with an $1100 enrollee deductible for routine offices visits alone and high deductibles in other services. Catastrophic limits are $5000/$10000.

In an interview, http://www.washingtonpost.com/wp-dyn/articles/A45777-2004Nov12.html GEHA was asked if the increase was related to the new plan.

Reston, Va.: I've had very good experience with GEHA to date. However, I have noticed that this year the high option increased by 18 percent. Is there a connection with the HSA that GEHA added this year?
Richard G. Miles: No, the rates for each plan are actuarially computed based upon each plans' claim experience.


The GEHA high plan is a favorite plan of retirees and the new HSA is expected to attract younger federal employees from the plan leaving older employees and retirees with no choice but to down grade their coverage as the rule of ''plans claim experience'' is applied to an increasingly older pool.