Will an HSA save you money?
Health Savings Accounts are gaining popularity, but business owners need to take a close look to see if the low-cost, high-risk plans are right for their company.
Normand Savellano, Chino Hills, Calif.
I am president of my own company and my wife is vice-president. We pay ourselves a salary and get our health insurance through the corporation. Are we eligible for an HSA and for the corporation to contribute?
By Kathleen Ryan O’Connor, Fortune Small Business contributor
HSAs – or Health Savings Accounts – are a hot topic right now. Ever since President Bush launched a high-profile push to expand access to HSAs in 2006, an increasing number of consumers are choosing to spend their health care dollars on the IRA-like vehicle – to the tune of 6.1 million users, up 1.5 million from last year, according to the health insurance trade group America’s Health Insurance Plans.
But before jumping in headfirst, know that HSAs come with one very important eligibility criteria: You must first be enrolled in a high-deductible health plan, or HDHP, and not have coverage under any other health plan, including Medicare.
According to the Health Savings Account Resource Center a qualified HDHP is a health plan with a minimum annual deductible of $1,100 for an individual, $2,200 for a family. They recommend that an insurance carrier or licensed insurance professional verify that a plan qualifies for an HSA. You can get penalized for setting up HSAs without the appropriate insurance. The idea behind this combination is to strike that elusive balance between protecting against huge medical bills while still providing users with an incentive not to run to doctor with every sniffle or head cold.
But no two people are alike, so plenty of individual research is necessary before you decide to switch health plans. Some people balk at the fact that HDHPs feature higher annual deductibles than traditional health insurance. Small business owners also tend to like them because they can provide employees with health insurance at a lower cost.
The biggest lure with an HSA is that contributions to your HSA, within limits, are completely tax deductible, as are any withdrawals for qualified medical expenses. Plus, HSAs are fully portable, and the balance can roll over year-to-year up to a predetermined amount – a key difference between HSAs and FSAs (Flexible Spending Accounts). You won’t face that year-end scramble to stock up on Tylenol to use up dollars that will otherwise disappear.
“You never lose it. It’s your account,” says Serena Yee, a St. Louis lawyer with Brian Cave LLP who specializes in employee benefit and retirement plans.
So what is the employer’s responsibility with HSAs? Very little, which is another thing that makes them attractive. Employers don’t have to contribute to their employees’ HSAs or even administer them. However, if you want to help your employees out, you’re allowed to contribute up to the annual HSA funding limit. For 2008, that limit is $2,900 for individual coverage and $5,800 for a family. For 2009, it will be $3,000 for an individual, $5,950 for a family.
But there are some rules. Contributions among employees must be equitable – you can’t contribute $1,000 to one worker and a $1 to another – and if an employee leaves, your contribution walks out the door with them, even if they’ve only been there a short-time.
The National Health Policy Forum offers a great deal of information about HSAs. Other good information sources include Information Strategies, a media and marketing company that runs a Web site called HSA Finder, and the Small Business Guide to HSAs by JoAnn Mills Laing.
Consulting with a qualified tax professional is also a smart idea, since the tax implications for a corporation are going to be different than those for an individual or family.
Rob Wilson, president of Employco, a Chicago company that handles payroll and benefits for small businesses, says that while HSAs have been slow to catch on, companies continue to keep an eye on them. After all, an HSA is a radical departure from a more traditional health plan – and the full benefit isn’t necessarily felt right away, he says.
Typically, in the first year you are paying the higher deductible without accruing any significant balance on the account, so a consumer has to be committed for the long haul. With HSAs, the idea is, “The less I go [to the doctor], the less I spend,” Wilson says – which also might be a problem for some people.
“Part of it is education,” he says.
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DiggTwo River Community Bank Middletwon, NJ offers HSA no fees, interest bearing.
I have an HSA through Mertain Health the largest independently owned TPA for Health benefits. I also receive very high discounts for my in network charges. I have fouond that by having a healthy lifestyle this can save me alot of money. HSA dollars after retirement can be used just like and IRA. I am currently 27 and feel this is just another way to save money for retirement and protect my healthcare future
Check out Patelco.com. They pay 5.12 percent interest on the HSA accounts. this is a credit union. It is 5.12 as of February 09. – no risk
One of the biggest advantages of using an HSA has not been mentioned. If it is linked to a good High Deductible plan, one gets the much lower negotiated rates for medical services. I have been using Anthem from BCBS for three years with excellent savings and without a heavy burden for legacy costs for my former employer.
I agree with Sandra….it was certainly used oddly (unless, as you say, it was changed after the fact).
HSAs come with ONE very important eligibility CRITERIA:
If you only read the later part, criteria fits. But that ONE messes it up.
David,
I’m really finding it difficult to figure out how fractional reserve banking is a “scam” that is “screwing” all of us. I suppose they should only lend what they have and they shouldn’t be able to have a spread to make a profit? Isn’t it difficult enough to acquire a loan as the system exists?
Even if I was irate over the fact that my deposits were 2% below what they should be, I’d be an idiot to use that as a rationale to forego tax savings of 25-35% in taxes through an HSA.
Another idea: why don’t you open a bank that plays by much fairer, socialistic rules and pay us all our fair shake.
Sandra, The word criteria was used correctly ( since there are two things : HDHP AND No other health plan) – unless the article was changed after your comment.
Please learn that the word “criterion” is singular and the word “criteria” is plural.
just to add the HSA account balances can be rolled over to another year which is NOT possible with FSAs
David – Please get a grip. You are horribly misinformed. while these funds are maintained in an account, there is a guaranteed rate of return and the funds are avaiable for immediate distribution for eligible expenses. The intent is that these accounts are for immediate medical expenses not covered by the health plan or for retirement. They are not part of the company’s or the bank’s general assets so there is no risk involved.
There are HSA’s that allow you to put your money into money markets that offer higer rates then the chump change you are talking about. Shop your banks.
How about the Tax deductable option. If you are in the 25% tax bracket, you will get a 25% tax break if you itemize. $4000 after taxes is $5000 before taxes. Talk to your tax advisor.
The Answer for me to the question posed is YES. I have spent less than $4500 on ALL of my health related expenses this year for my family including my insurance premiums. My entire family got physicals (covered by the plan) this year and we have not avoided going to the doctor when ill. I spent over $12,000 in premiums alone the prior year. An easy to use online resource is http://www.hsaeducator.com
I found that if you plan the year before making the change to a HSA you can put yourself into a great situation. Have a FSA the prior year and use any excess funds that you have left over in the first 3 months of your HSA year and you do not come out pocket any money that isn’t remimbursed to you early on. This gives you time to build up your HSA account. The FSA has a grace period that extends into the following year that allows you to dip into the prior year. If you look carefully at your plans you are paying the health care provider money that you could be paying yourself. I found that the difference was small. e.g. I have a deductible of 1,200 for my HSA. If I did the traditional I would pay for that insurance monthly 60 a month plus have a $600 deductible. 720 + 600 = 1320 that I paid. $600 of which I didn’t not receive any goods or services for. I could have used that 1320 in my HSA and I may or may not have used the money and it earned me interest. I no longer see the benefit of the traditional plan. Look at the facts from a different perspective.
David-You need to get your head on straight. HSA’s are great plans for companies. Even with paying out the HSA high deductible, employees save 25%-30% worse case scenario.
GE, BP get great returns so what is the point? For no risk you get a sensible return on the HSA account. This is a capitalist society, you make a return, it is invested with someone and they use it to make a return to. The greed has taken place at the corp level and at the personal level. 5% no risk, 10% massive risk. Go figure the next time you are at the doctor and need to pay which option you should have taken. Better yet, go pay for a high POS plan up front with no return……
Hey fellow AmeriKANS……
The banks and others love this stuff…they pay you CHUMP CHANGE interest that does not even keep up with INFLATION then lend this (YOUR) money out with 10 to 1 to 30 to 1 leverage.
SWEEEEET for the banks and for you….. CHUMP CHANGE!
Use YOUR money to GET OUT OF DEBT!
Two most power full things used against you to get your money are:
FEAR and GREED
Anyone that purchases a qualified high deductible healthplan can contribute to an HSA as long as you have no additional health coverage. These benifit programs could include coverage such as as a full medical FSA, Tricare, VA Benefits or Medicare.
Organizational structure can impact funding. If you are an S-Corp you are required to fund your HSA with after tax dollars and line item deduct those contributions on you personal tax returns. Some S-Corp owners take K-1 distibutions to fund their HSA accounts.
If you are C-Corporation, the corporation can make deposits on a pre-tax basis to the accounts in you and your wife’s name.
Please consult with a licensed tax advisor regarding the handling of contributions to your HSA account.
For additional information about HSA’s and our Free HSA account contact me at 847-273-1649.
Did you know Millennium Trust, Oak Brook, IL, offers Health Savings Account solutions to employees, employers and broker/dealers? Visit http://www.mtrustcompany.com/services/hsa/. For more information on how an HSA can help you, contact Alexandra Lyons at 630.368.5608.
Please Google : Fractional Reserve Banking and see the SCAM being played on YOU and all of the people of the USA what a SCAM!
SCAM SCAM SCAM and it’s ALL falling DOWN!
WAKE UP….. DO IT! Find out the TRUTH how you are being SCREWED! YOU are being CHEATED!
For the most part this stuff is CHUMP CHANGE ’savings’ not even worth the effort…..
The banks et. el LOVE this FREE money….. Get it FREE MONEY…. they pay you CHUMP CHANGE interest and lend it out at 10 to 1 or 30 to 1 leverage……depending how GREEEEDY they are!
Example: You deposit in a bank 100 grand…. they in turn lend it out as a MILLION dollars..or MORE!!
EACH loan paying interest to the bank and you get CHUMP CHANGE on YOUR 100K deposit
SWEEEEET…SUCKERS!
Money for the banks out of THIN AIR it’s called ‘Fractional Reserve Banking
Google it and see for yourself how we are being SCREWED!
WAKE UP SUCKERS… I DID now it’s your turn! WAKE UP!
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Good job Pres Bush for pushing this through, however, the state of Calif. are not on board with this type of plan. They are requiring you to report all spending used by the the HSA account. That took a big potential return from me and my family.Big deal anyways! I would not of gotten my returns, being the state of Calif holding the returns. So, the potenial savings is reduced for us Calif. resdents.