The acronym "H.S.A" is being tossed around quite a bit nowadays especially since the tax advantages of owning an H.S.A. and a corresponding qualified H.D.H.P (High Deductible Health Plan) have been significantly increased under the Bush administration. Effective December 20, 2006 President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006, enhancing Americans' access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants' to build their funds. To read about the new adjustments in H.S.A. law for the year 2007 & forward please Click here: http://www.treas.gov/press/releases/hp209.htm For the 2008 IRS H.S.A. COLA (Cost of Living Adjustments) please click here: http://www.hsacenter.com/2008-HSA-Contribution-Limits.php

 

H.S.A. stands for Health Savings Account. Health Savings Accounts are a unique way to attractively manage your health insurance costs. They were originally named M.S.A's or Medical Savings Accounts designed by Senator Bill Archer (R) of Texas.

 

Bill's project was to find a way to reduce the cost of health insurance for the self employed without sacrificing quality coverage for a major medical illness. Bill's brilliant idea was to eliminate the parts of a traditional health insurance plan that cost the consumer the most money. These expensive benefits include outpatient doctor "co pays" and outpatient prescription "co pays".

 

Bill approached Congress with a proposal that stated in essence that if you remove those two features and keep the major medical coverage in place you could conceivably cut the cost of your health insurance premium considerably. He was absolutely right!

 

To illustrate how Bill's idea works in the real world. We will use a real world example. Tony & his wife are currently paying $1,134 a month for Cobra continuation coverage from a previous group plan. In comparison, the monthly premium for an H.S.A. qualified H.D.H.P. (High Deductible Health Plan) which covers each insured family member up to $5 million dollars is less than half of the premium that they are paying now ($481.64 monthly to be exact). This is a yearly savings of $7,828.32 or a monthly savings of $652.36.

 

This is a significant difference, however the insured has to give up all of their outpatient co pays. Is this worth it? This was the question posed to Senator Bill Archer when he approached Congress back in the late 1990's. His answer to Congress was quite simply "make it worth it".

 

In other words, he asked Congress to make it worth it to the insured. Their response was two fold. And it is these two primary reasons that make H.S.A.'s a "no-brainer" for every self employed prospective insured and for their corresponding employees. The first thing Congress did was to state that if a policy holder buys a major medical health insurance policy (H.D.H.P.) with a yearly family deductible between $2,200 per family (not per person) or as high as $5,800 per family we will call that an H.S.A. qualified health insurance plan (H.D.H.P.)

 

They further said that in order to make giving up outpatient co pays more attractive to the insured we will allow anyone who has an H.S.A. qualified health insurance plan (H.D.H.P.) the option to open a tax favored H.S.A. (Health Savings Account) with their local bank or financial brokerage house. Since the insured is saving a considerable amount of money each month by giving up their out patient co pays, we will allow them to take that extra premium that they would have normally given the insurance company for the "privilege" of a co pay and put it into a 100% tax deductible account that will grow tax deferred at an interest rate adjusted by the Fed.

 

In addition to depositing the amount you save in insurance premiums, you may also deposit in your H.S.A. an amount equal what the I.R.S. allows for that given year. For the year 2008 the maximum contribution a family can make to their H.S.A. account is $5,800 In addition, any family member who is 55 years of age or older can deposit an additional $900 annually (more on the age 55 allowance below). This means that the total amount that Tony and his wife (in our example above) can deposit per calendar year is $7,600 and they can take a 100% tax deduction for that contribution similar to an I.R.A.

 

Furthermore, if they do incur medical expenses that arise throughout the course of the year that are subject to the deductible (i.e. prescriptions, doctor's office visit charges, etc.) the I.R.S. will allow them to pull out that money that they put into their optional tax deductible, tax deferred H.S.A. savings account to pay for those expenses. When they use their H.S.A. money to pay for those expenses the I.R.S. will allow them to write those expenses off at a 100% tax deduction. The list that the I.R.S. allows them to spend their H.S.A. money on is very liberal and includes things like dental, orthodontics, eyeglasses, radiokeratonomy (Lasik corrective eye surgery), alternative medicines etc. Click the hyperlink to see the list of allowable expenses and disallowed expenses on the H.S.A. section of the I.R.S. web site here: http://www.irs.gov/publications/p502/index.html 

 

Arguably the most attractive tax advantage to owning an H.S.A. is the fact that the money left over in the H.S.A. account that was not used on medical expenses at the end of the year is "rolled over" into the next year and awarded a higher rate of tax deferred interest. The insured also has the option to roll those unused funds into no load mutual funds, thereby building an extra tax deferred retirement account with money they would have normally given to the insurance company each and every year whether or not they had any claims that year!

 

To learn more about H.S.A.'s and the recent federal legislation that has made them even more attractive to people over the age of 55 click below: http://www.treas.gov/offices/public-affairs/hsa/about.shtml to read all about them on the Federal Governments H.S.A. educational web site. To learn more about H.S.A.'s in a video and power point presentation format please click here: http://www.hsacenter.com/

 

If you are an employer and are considering H.S.A. qualified plans for your employees consider this. An individual's employer can make contributions that are not taxed to either the employer or the employee. The combined income and payroll tax deductibility leads to discounts for health insurance of over 40 percent in some cases relative to other forms of insurance. For more details about the advantages to the employer please click here: Click here: U.S. Treasury - HSA Frequently Asked Questions

 

Beginning in the year 2007 one company - American Community Mutual (www.american-community.com) introduced a truly unique H.S.A. qualified H.D.H.P. It is called the
"Next Generation" H.S.A. (see the first brochure pictured below). This H.S.A. qualified H.D.H.P. has three unique features that make it superior in design over all other individual H.S.A. qualified H.D.H.P.'s on the market today.

The first of the three benefits is called the "embedded deductible feature". As aforementioned, the typical H.S.A. qualified H.D.H.P. does not start paying anything until the entire family deductible has been satisfied. This means that whether one person gets sick or multiple family members get sick the insurance company will not pay anything until the entire family deductible has been satisfied. If your plan has a $5,450 family deductible this can feel quite unfair if only one member of your family gets sick.

In stark contrast, the American Community Mutual "Next Generation" H.S.A. qualified H.D.H.P. eliminates this problem by offering the "embedded deductible feature." This benefit (for a few dollars more per month) requires the insurance company to start paying after only one family member has satisfied their individual deductible (half of the family deductible). This significantly reduces the out of pocket expense to the family if only one  person gets sick. This is a valuable benefit since statistically speaking only one family member (if any) will incur medical claims in any given year.

The second and more valuable benefit is the $10,000 "stop loss" number that is included when the 80% coinsurance option is chosen. According to I.R.S. Doc 5305-B (http://www.hsacenter.com/2008-HSA-Contribution-Limits.php) the new (2008) adjusted maximum annual out of pocket expense that a family will pay that owns an H.S.A. qualified H.D.H.P. with the 80% coinsurance option is $11,200 regardless of the deductible chosen.

Although this is the maximum allowable out of pocket expense that a family will experience if they choose the 80% option with any other H.S.A. qualified H.D.H.P. American Community Mutual decided to reduce the maximum out of pocket a family can experience per year on their "Next Generation" plan to only $2,000 in addition to the chosen deductible. See page two line 6 of the Next Generation H.S.A qualified H.D.H.P. brochure below.

This quite simply means that after a family has satisfied their chosen calendar year family deductible the insurance company will pay 80% ($8,000) and the family will pay 20% ($2,000) of the first $10,000 in medical bills that are incurred. Afterwards the insurance company will pay 100%. This first $10,000 is known as the "stop loss number".
The Next Generation plan is the only H.S.A. qualified plan on the market today that offers this type of co-insurance arrangement and it is much better than the typical H.S.A. qualified plan that offers an 80% option because it results in significant out of pocket risk reductions to a family.

To illustrate this further, we will use the $5,450 family deductible for example. With the typical H.S.A. qualified plan, if an 80% option is chosen then this would subject the family to an out of pocket expense of $11,200. In stark contrast, the Next Generation plan would subject the family to only $7,450 before American Community Mutual would pay 100% of the family's medical bills for the rest of the calendar year. This is $3,750 less out of pocket than any other H.S.A. qualified H.D.H.P. on the market today and the Next Generation plan is priced the same or less than most plans!

The third unique benefit is the unlimited "Accident Medical Expense"  benefit. This benefit will waive the entire deductible if an accidental injury occurs and pay for all the charges related to the accident at either 100% or 80% depending on the coinsurance you chose. This benefit will kick in each and every time an injury occurs to any family member.

Please “Contact Us” with questions about H.S.A.'s. If you have a C.P.A. or tax advisor please feel free to ask he or she about the advantages of owning an H.S.A. as well.
Five of the best priced H.S.A. Qualified H.D.H.P.'s available on the market today are highlighted below.