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Individuals, sole
proprietors and employers
are facing a serious health
insurance challenge. Health
insurance premiums are
escalating rapidly and
reaching record levels. New
concepts need to be
developed to control costs.
An emerging concept in the
health insurance industry is
the Health Savings Account (HSA).
HSA’s allow consumers to
contribute pre-tax or
tax-deductible dollars to an
account that can be used for
approved medical expenses.
HSA’s were created and
passed with the Medicare
legislation that was signed
into law in December 2003.
The law requires that a
“High Deductible Health
Plan” that does not cover
first dollar medical
expenses (with a few
exceptions such as
preventive care) be used in
conjunction with HSA’s. The
high deductible health plan
must have a minimum of a
$1,000 annual deductible for
individuals ($2,000 for
families). Annual
out-of-pocket limits cannot
exceed $5,000 for
individuals and $10,000 for
families. The hope is that
the adoption of a high
deductible health plan will
result in significant
premium savings for the
consumer so that they can
put money into an HSA to
cover cost associated with
deductibles and coinsurance,
should they be incurred. The
employee and/or the employer
can contribute pre-tax the
greater of their deductible
or up to $2600 per
year/Individual or
$5,150/Family (for 2004 and
indexed thereafter for
inflation). Distributions
are tax-free as long as they
are used for qualified
medical expenses. If the
funds contributed to the HSA
fund are not used the money
can simply roll over into
the next year, a welcome
improvement from the current
“use it or loose it”
provisions of the popular
Flexible Spending Accounts.
In addition, HSA’s can grow
through investment earnings
just like an IRA/401K
arrangement. Contributions
to your HSA can continue as
long as your high deductible
health plan is in effect. If
coverage is lost, you are
able to continue making
withdrawals for qualified
medical expenses but you can
no longer contribute to the
HSA. This is a great savings
tool for medical expenses
after retirement too. The
account is completely
portable if you should
decide to change health
carriers.
Sound too good to be true?
The health savings accounts
are a great concept but
their success hinges on two
factors: The first being the
rate spread that insurance
carriers are willing to give
between first dollar,
traditional health plans and
those with high deductibles.
The cost differentials will
quickly be seen as health
insurance carriers here in
Western PA are now rolling
out their High Deductible
Health Plans (HDHP’s)
compatible for HSA’s for
January, 2005. The second
factor is the consumer. The
consumer (HSA account
holder) will determine the
success of this concept as
the movement aims to control
rising health care costs by
transforming the patient
into a consumer. Motivating
consumers to shop around for
cost efficient care and
therefore better managing
their health care
consumption will be the key
to this concept. These plans
will likely benefit those
who are in relatively good
health as opposed to people
with moderate to severe
health issues who will
quickly eat up the premium
savings with medical
expenses.
Will HSA’s be right for you
or your company? The best
place to start is with your
benefits professional. A
qualified benefits
professional can help to
analyze your individual
situation and implement
long-term strategies.
Creative thinking contains
costs.
Kelly L. Ross, CEBS
Certified Employee Benefit
Specialist
C. B. Tracy & Associates,
Inc.
724-834-1090 |
