If every penny you spent on health care came out of your own pocket, two things would happen.
First, you'd be more interested and involved in your treatment, questioning the cost and necessity for every medical procedure.
And second, you'd take better care of your health, knowing that being overweight or smoking or not exercising is bound to be costly to your own financial future.
That's the appeal of Health Savings Accounts. They let people keep the money they
spend on medical costs -- in an account that grows tax-deferred every year, to pay for future medical expenses. And the money they
spend for medical expenses is paid out of the account on a pre-tax basis.
The savings account is combined with a high-deductible insurance policy that costs less than traditional policies, but does cover major medical expenses. Employers may use some of the money they save on premiums to contribute to their employees' HSAs.
In 2007, individuals can set aside a tax-deductible contribution to HSAs of up to $2,850, or $5,650 for a family. (Those age 55 and older can contribute an extra $800.) But you don't have to be an employee of a big company to access an HSA and the related high-deductible insurance policy. Just go online to
www.ehealthinsurance.com and click on the option to find Health Savings Accounts. Or you can call them at 800-977-8860 to get help in the process.
How to Compare HSA Plans
Major companies such as Blue Cross/Blue Shield and Golden Rule Insurance offer a combination of high-deductible insurance policies with a savings and investment plan for the money you set aside each year. In fact, most of these plans allow you to pay for your medical expenses with a debit card that dips directly into the health savings account.
Because health insurance policies are offered and priced by your state of residence, you'll be asked for your ZIP code. Policy costs are based on age, location, some health underwriting, and also can depend on your gender. For example, BlueCross/BlueShield's BlueEdge plan offers maternity benefits for women.
Start by comparing deductibles, which might range from a low of $1,100 to the maximum of $2,850 for an individual, or from around $2,200 to a maximum of $5,650 for a family. You can reduce your monthly premium by electing 80% coverage of costs over the deductible, instead of 100% coverage. Make sure you get coverage up to a $5 million maximum.
What HSAs Cost
You'll pay a monthly premium for your high-deductible policy. Currently, this is an after-tax expense -- but under the president's proposal, it would be covered by the $7,500 health insurance-tax deduction ($15,000 for couples).
Tom, age 32, nonsmoking male
The Golden Rule HSA 100 plan has a $1,850 deductible, with 100% coverage over that amount. It costs $129 a month. Tom also stashes away another $154 a month in the savings portion of his plan -- or a total of $1,848 a year. His medical bills are paid on a pre-tax basis out of this account. But if he stays healthy and doesn't use the money, it will roll over for future use.
If Tom continues to put $154 each into his HSA each month,
and never pays any bills out of the account
and earns 5% interest, he will have accumulated a balance in excess of $126,000 in 30 years.
Sue, age 34, nonsmoking female
BlueCross/Blue Shield offers the "BlueEdge" HSA (
www.bcbsil.com). Sue wants a plan that includes maternity coverage. The plan has a deductible of $1,750. It costs $175 a month, with 80% coverage of all expenses over the deductible, or $213 per month for 100% coverage. She funds the savings account with another $146 a month, for a total of $1,750 -- money that can be used to pay medical bills or grow tax-deferred.
Mary, age 60, retired female
Health savings accounts are particularly attractive to people who retire early. Mary is paying $800 a month under COBRA to keep her employer-sponsored health insurance for at least 18 months. If she is healthy and can qualify, she could purchase a BlueCross/BlueShield HSA plan with 100% coverage over a $1,750 deductible for $256 per month, or 80% coverage for $209 per month.
Whether you're self-employed and looking for affordable coverage, or have the Health Savings Account option in an employer plan, it's definitely worth considering -- especially if you stay healthy! And that's The Savage Truth.
Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage?s personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,
The Savage Number: How Much Money Do You Need?
in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald?s and Pennzoil.