Make Money from Your Health Care Plan
Using An HSA
By Peter J. D’Arruda
people are familiar with the old Medical Savings Account (MSA)
plans. These were the supplemental health care plans whereby you
could contribute money to pay for typically non-covered medical
expenses. The only problem was that in order to have an MSA, you had
to first have health insurance with an incredibly high deductible,
and any MSA money you did not use by the end of the tax year was
lost forever. Because of these restrictions, many consumers disliked
the plan and actually became fearful of contributing to one.
the Medicare Prescription Drug Improvement and Modernization Act of
2005, Health Savings Account (HSA) plans were firmly planted into
the tax code. While some aspects of the HSA plan mirror the MSA
plan, there are many differences—all of which are in your
favor. In a sense, HSA plans are the next generation of MSA plans.
fore you make another high health insurance premium payment, know
the facts about HSAs and how one can actually make money for you.
Benefits of an HSA : While an HSA has many benefits, you do need
to meet one important criterion before you can open one: Your
existing health care insurance must be a High Deductible Health Plan
(HDHP). But, just because your family has a $10,000 yearly
deductible doesn’t mean you have an HDHP. The required HDHP policy
enjoys special features not found in most policies issued prior to
the advent of the HSA (except for the MSA-qualified policies). So
before you start an HSA,you must first check with your insurance
carrier to be sure you have an HSA-qualified policy.
Assuming you have the correct type of health insurance in place, you
can now enjoy the many benefits of an HSA, such as:
Lower monthly health insurance premiums: Because you have a
higher deductible on your health insurance policy, you pay a
lower monthly premium. So let’s say a health insurance policy
with a $1,000 deductible costs you $500 per month. By opting for
a plan with a $5,000 deductible, for example, your monthly
premium is only $300. You can now take that $200 savings and
deposit it into your HSA. And be honest…every month when you pay
your high health insurance premium, don’t you feel like you’re
throwing your money away? Well, with an HSA, you put that $200
into an account that earns interest, which you can draw from at
any time. So in a sense, you’re now paying part of your health
insurance premium to yourself.
Immediate tax savings: Just like an IRA or 401(k), every dollar
you deposit into your HSA is done with a pre-tax dollar which
lowers your yearly taxable income. If you’re single, you can
deposit up to $2,700 into your HSA per year, and if you’re
married, you can contribute up to $5,450 per year. The only
restriction is if your health care insurance deductible is lower
than the allowed contribution. In that case, you can only
contribute up to the amount of your deductible. People age 55
and older are allowed a special “catch-up” feature, which
enables them to put an extra $700 a year into their accounts.
Additionally, when you take the money out to pay for covered
medical expenses, the money is still not taxed. Even better,
“covered medical expenses” are things not usually covered by
your health care policy, such as dental, vision, acupuncture,
vitamins, long-term care insurance, cobra premiums, or health
care premiums while unemployed. Talk about a win-win situation.
Long-term growth potential: With an HSA, you can actually make
money on your health care plan. First, realize that once you put
the money into the account, you can’t lose it, unlike the old
MSA plans where you had to obey the “use it or lose it” rule.
Think of an HSA as an IRA for your health savings. If you stop
putting money in or don’t use the money you contributed, it
stays in your account and builds interest indefinitely. You can
even invest the money into the stock market or annuities.
Whereas most people are used to paying a lot of money each month
for their health insurance premiums and never seeing that money
again, with an HSA you have the opportunity to sit back and
watch that money grow.
Greater flexibility when Medicare kicks in: If you’re nearing
retirement, an HSA is still a good choice. Since you don’t lose
the funds if you don’t use them, you have the potential to save
quite a bit of money over the years. When you turn 65 and go on
Medicare, you can withdraw any unused HSA contributions and use
the money for other things, such as a vacation or college money
for the grandkids. The only restriction is that since you’re
withdrawing the money for non-medical expenses, you have to
report that money as income on your taxes.
Puts you in control: With an HSA plan, you can choose to visit
any doctor you like. You’re not restricted by networks or
referrals. Additionally, you aren’t obligated to always put a
certain amount of money into the plan each month. If you’ve
contributed enough to meet your deductible, or if you simply
don’t want to contribute for a few months for other reasons,
then you can stop at any time and resume contributions at a
later date. Now you really have control over your health care
Peace of mind: Most HSAs are FDIC insured. The only way you
could lose your HSA money is if you decided to invest it in the
stock market, and the stock market took a downturn. But just
like any investment, never put too much of your money into
something risky. The safest alternative is to keep the money in
an HSA fixed (no risk) savings account, this way you have
immediate access to the money and it builds interest.
Less restrictive: In the past, only companies with 50 or more
employees could offer an MSA plan. HSAs are not that restrictive
and are available to virtually anyone with a HSA-qualified
policy. HSAs are also completely portable, so if you leave your
job and move to a company that does not offer an HSA, you can
still draw from your previous HSA to pay medical expenses, until
you deplete the account; you just can’t contribute to the
HSA Plan in Your Future? Those who start an HSA and who use the
account to the fullest extent possible typically have only one
complaint: They wish they could put more money into the account each
year. They enjoy the tax benefits and health insurance premium
savings an HSA affords, and they appreciate the account’s
flexibility and long-term growth options—two things MSAs didn’t
you’ve avoided starting an HSA because you think it’s too much like
the old MSA plans (restrictive and not consumer focused), look
again. When used correctly, an HSA could be the solution you’ve been
looking for to combat rising health insurance costs.
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