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Insurance, tax-free savings join for healthy new year

Updated: May 3, 2013 12:14PM



Originally published: September 30, 2004

At the start of this year I wrote a column about the new health savings accounts, the next-generation of affordable health insurance plans. Now HSAs are becoming widely available to companies and individuals. If you’re interested in a health insurance plan that can save premium dollars, give access to any health-care professional, and allow you to bank the money that you don’t have to spend on medical services, the HSA concept is for you.

It benefits employers, employees -- and even those who currently don’t have any health insurance.

HSAs combine a high-deductible, health insurance policy and a tax-favored savings account. Instead of buying a health insurance policy with a $250 deductible, you’d buy a policy with a $2,500 deductible. That policy costs much less, and the money you save on insurance premiums -- as much as 40 percent of traditional costs -- can go into a special, tax-deductible savings account and be used to pay for medical expenses

An individual can contribute and deduct up to $2,600 a year, or $5,150 for families, into the HSA. But you can start this tax-deductible account with a much lower contribution. The money grows tax-free, and can be accessed at any time to pay any IRS-approved medical expense. And if you don’t spend the money this year, it rolls over, growing tax-free to use for future medical expenses.

The principle is simple: People who pay for their own medical expenses have an incentive to choose services and costs carefully, knowing that if they don’t spend the money, their account will continue growing to pay for future medical expenses -- even after retirement.

Employees know that above the high deductible, their major health-care costs will be insured by top insurance companies, either on a 100 percent basis, or on an 80/20 basis, and that their HSA is there for smaller expenses.

Even people currently without health insurance might purchase these lower-cost, high-deductible plans to protect against the financial disaster of uninsured medical expenses.

And HSAs give employers a far better choice than expensive insurance for their employees -- or no insurance for their employees. In fact, most employers save so much on their HSA plan high-deductible policies that they contribute some of the savings to the employees’ HSAs.

Since all of these HSA plans combine a health insurance policy and a tax-favored, savings/investment account, you’ll want to deal with a company that offers both aspects of the plan on a simple, well-organized basis. Here are three sources that offer plans to both business and individuals:

Destiny Health (www.destinyhealth.com or 888-999-7304). This company partners with Guardian Health Insurance Co., one of the largest, to offer a “turn-key” operation for individuals and employers. Destiny’s Personal Medical Fund (PMF) is the savings vehicle for the plan, with money deposited in liquid, money market instruments. The Destiny card acts as an insurance card at the doctor’s office or hospital, even getting lower negotiated rates for in-network providers. Those providers bill Destiny, which deducts the amount from the PMF to pay the bill, and sends a monthly account statement to the employee. If there’s not enough money in the PMF, the employee is responsible for the bills -- up to the point where the high-deductible health policy kicks in.

Flex-HSA (www.flexhsa.com or 888-FLEX-HSA). This company works with major insurers like Aetna and Blue Cross/Blue Shield to offer its HSA plan, with a slightly different twist on the savings portion and on the payment of bills.

The individual’s HSA is deposited at an FDIC-insured bank account, but there is also an option that allows individuals to invest their HSA in stocks or mutual funds to grow tax-deferred. And they use a Visa debit card to allow consumers to pay bills directly out of their HSA.

EHealthInsurance (www.ehealthinsurance.com) is an online provider of health insurance products. You’ll have to search through its listings of individual or company policies to find those that are qualified as HSA plans, including companies such as Golden Rule and Aetna.

Although I recommend eHealthInsurance.com for comparing traditional health insurance policies and prices, I think the personalized service of a provider such as those listed above will make the process a lot easier.

The best time to consider the HSA plan is now, so you can start on Jan. 1, and make the maximum allowable full-year contribution to the savings portion. The first step is to contact providers, get quotes, and find out for yourself how much you’ll save. And that’s The Savage Truth.

Terry Savage is a registered investment adviser, and appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast. Distributed by Creators Syndicate.



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