A better way to pay for healthcare
It's rare when a government program actually earns heaps of praise from a taxpayer. But when Health Savings Accounts were included in the Medicare Act of 2003, it was exactly what Dave Limberg of Bloomington, Minn., was looking for.
Not only have HSAs reduced healthcare costs for Mr. Limberg's family, the accounts have also kept a lid on costs at Standard Dynamics, a printing equipment distributor with nine employees, where Limberg serves as the company's controller.
"It was a no-brainer for us," says Limberg, who personally pays $490 every month for his wife's three prescriptions. "We had 17 percent increases in premiums over the past five years. Since we implemented HSAs, our overall healthcare costs have remained flat, compared with a 10.2 percent increase had we stuck with our previous plan."
In fact, HSAs are the latest method for controlling healthcare costs and represent a kind of 401(k) for healthcare expenses. Since the beginning of the year, the accounts have been available to people under age 65 who have a qualifying health-insurance plan with a deductible of at least $1,000 for individual coverage and $2,000 for family coverage. Individuals can dip into their plans to cover out-of-pocket healthcare costs up to $5,000 a year ($10,000 a year for families).
But what makes HSAs attractive to so many is that money in the accounts can be spent tax-free on healthcare, and the funding can be provided by companies, their employees, or both. Whoever provides them, annual contributions are limited to $2,600 for individuals and $5,150 for families.
If this sounds a lot like a medical savings account or a flexible savings account, it is - with one major difference. HSAs are far more flexible. For example, unlike MSAs and FSAs, which have been around since 1996, HSA money that goes unspent in any given year can be rolled over to future years. What's more, these accounts are portable, so when you change jobs, you can take the money with you. And if your employer doesn't offer an HSA, you can set up one on your own. Under the new law, an existing medical savings account can be converted to an HSA.
The program is so new that investment options aren't yet available. But eventually, experts say, money sitting in an HSA could be plowed into a money market or stock fund and earn money - much like an individual retirement account (IRA).
"If your company has this option, it makes a lot of sense to enroll in one," says Gary Ambrose, a financial planner in New York City. "Even for someone who's self-employed, there is no downside in implementing a plan of your own. It may be new, but there are some advantages taxwise to having an HSA."
Financial planners like just about any federal law that allows their clients to reduce their tax burden. With an HSA, earnings on your contributions to the savings accounts grow tax-free.
In addition, you can spend the money that accumulates on healthcare expenses now, or save it for the future. Withdrawals are tax-free forever, as long as you use the money to pay for medical care.
Page: 1 | 2 
