Is the HSA plan for you?
Is the HSA plan for you?
The HSA or Health Savings Account plan is a high deductible plan as defined by the Federal Government. The deductible will increase a little each year depending on the inflation factor. This type of plan meets my definition of true insurance, which is protection against an unforeseen catastrophic financial loss. In addition to giving true insurance, this plan gives important and significant tax advantages. If you have a qualified HSA plan you are eligible to put money into a HSA savings account tax free. The amount you can put into the account is lesser of the deductible or $5450 per year for a family or $2700 a year for an individual. Deductibles start at $1000 for an individual and $2000 for a family. For many HSA plans, the deductible is a family deductible as opposed to an individual deductible for traditional plans. The Savings can be used to pay for traditional medical expenses as well as the insurance deductible, but not the premium except in specific circumstances (see section 213d of the IRS code). Some other examples are: Office Calls, Prescriptions, Acupuncture, Braces, Chiropractors, Contact Lenses, Hearing Aids, and Sterilization. Other little know examples are: Wages for nursing services, Capital expenses for equipment or improvements to your home needed for medical care, Special school or home for mentally or physically disabled persons, Cost of lead-based paint removal and Cost and care of guide dogs or other animals aiding the blind, deaf and disabled. The savings can go into an interest bearing savings account or even a mutual fund. The advantages of a HSA plan are two fold. First the cost of the insurance is much less than traditional health insurance and second, the tax savings. To appreciate the tax savings make sure you consider all the taxes involved, including State, Federal and Social Security taxes. To illustrate, assume your Federal tax is 25%, State tax 5.5% and Social Security tax 7.5%. That adds up to 38%. That means that for every $100 you spend on any health expense, including the insurance deductible, you first must pay $61.29 in taxes. For a plan with a $5450 deductible the savings can amount to $3340 in taxes. For the self employed, remember to add another 7.5% savings for the self employment taxes. In the upper tax brackets the savings can amount to 50% or more. The funds stay in your savings account from year to year, earning interest, until you use them. If you use the funds for an unauthorized expense you will pay the taxes plus a 10% penalty. After age 65, when you go on Social Security, you can leave the funds in the account until you use them up or you can take the funds out and avoid the 10% penalty. You will however, pay the taxes.
Richard R Evans
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