People are really interested in the new Health Savings Accounts (HSAs). There are now three million of them that have been bought nationwide. These are the new policies that have been getting so much attention, including favorable comments from President Bush.
The idea is to get a High Deductible Health Plan, which is lower priced than the regular health insurance plans. These are very specific insurance policies. With the exception of preventive care, they can not cover anything until you hit the high deductible. Once the deductible is met, they either cover a percent of the rest of the medical needs, or they cover all of the rest of the costs for the year. If they cover a per cent, it is usually until another dollar amount has been reached, at which point they cover all the additional costs for the year.
What happens to all the expenses that come up before the deductible has been met? Well, the idea is that you put some money aside into a special Health Savings Account (HSA). These accounts are available from specific institutions that specialize in them. The money goes into the accounts pre tax, and grows tax free. You take money out for your health needs, also tax free. The institutions that specialize in HSAs often offer debit-like cards so that getting your money out is really easy.
It is expected that the renewals for HDHP policies will be lower, because you really don't use much of the insurance part of the plan. With the usage down, the rates have less reason to rise.
This sounds a lot like the old FSA accounts, except it is better. Individuals can take out HSAs and whether you are a group or an individual, your money is always yours. It does not go away if you don't use it, and there are no deadlines for the usage. Also, if you still have money in your account, it rolls over year after year. When you are 65 you can take out the money at your then tax rate. Anytime you use your money for medical expenses it is tax free, and if you need to take it out for a non medical need, you pay the taxes and a ten per cent penalty.
If your account rolls over and you develope quite a lot of money in it, you may feel pretty comfortable raising your deductible even higher. This will result in even less renewal increases.
So, it sounds pretty good so far, right? Well, it gets better. As you are using the high deductible part of the policy, you still get in network negotiated rates. That means that your dollars will go farther than if you didn't have insurance. In order to get these rates, you must use an in network doctor and facility, of course.
The tax savings part of the account is great, but really think for a minute what that means to your wallet. If you go to the doctor, and his normal rate is $150.00, but the in network negotiated rate is $100.00; if you pay for it with tax free dollars and you are in the 25% tax bracket, it will be like you are paying only $75.00 for the visit. The other $25.00 is your tax savings. That is using relatively low numbers. Imagine the impact of a a higher priced medical need.
Lower amounts of money sent to the insurance company, tax favored medical costs and savings accounts, lower renewal rates... What's not to love????
No wonder three million of these have been sold!!!!
