Health Savings Accounts May Work for You

Are your health care costs soaring DESPITE having health insurance?

There may be a solution.

If your health insurance deductible is more than $1000 for yourself or more than $2000 for your family, you may be eligible for a Health Savings Account or HSA.

You, your employer or both can contribute funds to an HSA up to the amount of your health insurance policy's annual deductible. There is a $2,600 cap on individual policies and a $5,150 cap for families. Individuals between ages 55 and 64 can make additional contributions ($500 in 2004, up to $1000 by 2009).

Contributions made by an employer are not counted as taxable income, and contributions you make are tax deductible. Any interest or investment earnings generated by the account are not taxable while in the HSA or when used for a qualified medical expenses such as prescription and over-the-counter medications, eye glasses and contacts, long-term care services and the purchase of continued health care coverage for the unemployed individual (via COBRA). Amounts distributed which are not used to pay for qualified medical expenses are taxable and incur an additional 10% tax penalty to prevent the use of HSA for non-medical purposes.

You own your HSA, making it portable. Any funds you don't use in one year carry over to the next, including the interest. And, if you change jobs, your HSA goes with you.

Even if you do not currently have a high deductible, you may want to consider changing to a high-deductible policy. High-deductible policies are considerably less expensive (often 20% to 40% cheaper). You can put the savings into an HSA, allowing it to grow tax-deferred until a medical need arises or until age 65 when you can make penalty-free withdrawals for any reason.

HSAs are a provision of the recently-enacted Medicare Reform Act. Rulings on plan administration are regularly updated by the Treasury Department, but who HSAs will best serve and which employers will offer them as part of their benefits package are open questions. Confident that the plans will appeal to many individuals and families strapped by the cost of health insurance, major companies such as Aetna, Cigna, some Blue Cross Blue Shield, State Farm, Merrill Lynch and Golden Rule, to name a few, already have programs in place.

If you think an HSA may be appropriate for you and your family, contact The Pinnacle Group. We will be glad to help you assess your risk and calculate potential investment benefits. HSAs may not be for everybody, but they just may be the right choice for you.