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Health Savings Accounts let unspent money grow

Updated: May 3, 2013 12:14PM

If every penny you spent on health care came out of your own pocket, two things would happen. First, you'd be more interested and involved in your treatment, questioning the cost and necessity for every medical procedure. And, second, you'd take better care of your health, knowing that being overweight, or smoking, or not exercising is bound to be very costly to your own financial future.

That's the appeal of Health Savings Accounts. They let people keep the money they don't spend on medical costs -- in an account that grows tax-deferred every year to pay for future medical expenses. And the money they do spend for medical expenses is paid out of the account on a pre-tax basis.

The account is combined with a high-deductible insurance policy that costs less than traditional policies, but covers major medical expenses. Employers may use some of that savings to contribute to workers' HSAs.

In 2007, individuals can set aside a tax-deductible contribution to the HSA of up to $2,850, or $5,650 for a family. (Those age 55 and older can contribute an extra $800.)

But you don't have to be an employee of a big company to access a Health Savings Account, and the related high-deductible insurance policy. Just go online to, and click on the option to find Health Savings Accounts. Or you can call (800) 977-8860. How to compare HSA plans

Major companies such as Blue Cross and Blue Shield and Golden Rule Insurance offer a combination of high-deductible insurance policies with a saving and investment plan for the money you set aside. In fact, most of these plans allow you to pay with a debit card that dips directly into the health savings account.

Since health insurance policies are offered and priced by your state of residence, you'll be asked for your ZIP code. Policy costs are based on age, location and some health underwriting, and can also depend on your gender. For example, Blue Cross and Blue Shield's BlueEdge plan offers maternity benefits for women.

Start by comparing deductibles, which might range from a low of $1,100 to the maximum of $2,850 for an individual, or from around $2,200 to a maximum of $5,650 for a family. You can reduce your monthly premium by electing 80 percent coverage of costs over the deductible, instead of 100 percent coverage. Be sure to get coverage up to a $5 million maximum.What HSAs cost

You'll pay a monthly premium for your high deductible policy. Currently, this is an after-tax expense -- but under the president's proposal, it would be covered by the $7,500 health insurance tax deduction ($15,000 for couples). Here are a few examples.

Tom, age 32, non-smoking male: The Golden Rule HSA 100 plan has a $1,850 deductible, with 100 percent coverage over that amount. It costs $129 a month. Tom also stashes away another $154 a month in the savings portion of his plan. His medical bills are paid on a pre-tax basis out of this account. But if he stays healthy and doesn't use the money, it will roll over for future use.

If Tom continues to put $154 each month in his HSA, and never pays any bills out of the account, and earns 5 percent interest, Tom will have accumulated a balance in excess of $126,000 in 30 years.

Sue, age 34, non-smoking female: Blue Cross and Blue Shield offers the "BlueEdge" HSA ( Sue wants a plan that includes maternity coverage. The plan has a deductible of $1,750. It costs $175 a month with 80 percent coverage of all expenses over the deductible, or $213 per month for 100 percent coverage. She funds the savings account with another $146 a month.

Mary, age 60, retired female: The concept of Health Savings Accounts is particularly attractive to people who retire early. Mary, age 60, is paying $800 a month under COBRA to keep her employer-sponsored health insurance for at least 18 months. If she is healthy and can qualify, she could purchase a Blue Cross and Blue Shield HSA plan with 100 percent coverage over a $1,750 deductible for $256 per month, or 80 percent coverage for $209 per month.

Whether you're self-employed and looking for affordable coverage, or have the Health Savings Account option in an employer plan, it's definitely worth considering -- especially if you stay healthy! And that's The Savage Truth.

Terry Savage is a registered investment adviser. Check out Terry's answers to reader questions at, and click on Business.

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