August 30, 2015

THANKS, W:

Health savings accounts: Is an HSA right for you? (Mayo Clinic)

Health savings accounts (HSAs) are like personal savings accounts, but the money in them is used to pay for health care expenses. You -- not your employer or insurance company -- own and control the money in your health savings account. The money you deposit into the account is not taxed. To be eligible to open an HSA, you must have a special type of health insurance called a high-deductible plan.

Why were health savings accounts created?

HSAs and high-deductible health plans were created as a way to help control health care costs. The idea is that people will spend their health care dollars more wisely if they're using their own money. In addition, doctors and other health care providers will have an incentive to lower their rates because they're competing for business.

Is a health savings account right for me?

Like any health care option, HSAs have advantages and disadvantages. As you weigh your options, think about your budget and what health care you're likely to need in the next year.

If you're generally healthy and want to save for future health care expenses, an HSA may be an attractive choice. Or if you're near retirement, an HSA may make sense because the money in the HSA can be used to offset costs of medical care after retirement. On the other hand, if you think you might need expensive medical care in the next year and would find it hard to meet a high deductible, an HSA might not be your best option.

What are some potential advantages of health savings accounts?

You decide how much money to set aside for health care costs.
You control how your HSA money is spent. You can shop around for care based on quality and cost.
Your employer may contribute to your HSA, but you own the account and the money is yours even if you change jobs.
Any unused money at the end of the year rolls over (stays in your account) to the next year.
You don't pay taxes on money going into your HSA.

Health Savings Accounts (HSAs): A Win-Win-Win (GERRY LEONARD, PRESIDENT, ADP BENEFITS SERVICES, 8/26/15)

An annual census by America's Health Insurance Plans (AHIP) of U.S. health insurance carriers shows that the number of people covered by health savings accounts/high-deductible health plans (HSA/HDHPs) totaled 15.5 million in January 2013. Clearly, a lot of people see the potential benefits of HSAs.

Let's look at three of those "wins" more closely.

WIN #1 - Out-of-pocket spending can be pre-tax using an HSA.

This can be a big win for an employee. In 2014, 72% of U.S. employees enrolled in HDHPs did not spend enough on health care to meet their deductible. That means that all of the money they spent came out of their own pockets, and their insurance provider was not involved in most of those events.

According to HSAcenter.com, HSA contributions can be:

used to pay out of pocket expenses incurred prior to meeting the HDHP deductible.
tax deductible from gross income.
pre-tax when contributed through a cafeteria plan.
invested tax-deferred.
tax-free when used for qualified medical expenses.
rolled over year after year (Said another way, there's no "use-it-or-lose-it" requirement.).

WIN #2 - Pre-tax contributions employees make to an HSA are pre-tax for the employer.

Employers who encourage their employees to open an HSA can benefit by potentially saving as much as 7.65% in employer tax costs. For example, if an employee puts $1,000 into an HSA, they can save taxes at their own marginal rate, and the client can save as much as $76.50 on those contributions. In addition to the financial wins, there is the additional win of getting the employees even more engaged in managing their health care expenses. Our clients have told us that employees who have an HDHP and an HSA are more likely to ask questions about the cost of health care services and far more likely to research the best value on those services.

WIN #3 - There is no "use-it-or-lose-it" requirement.

I mentioned this briefly above, but it's an important point that bears repeating. Unlike Flexible Spending Accounts, HSA balances can be rolled over and saved, tax-deferred, until age 65 when they can be withdrawn, similar to a 401(k) plan. This is why HSAs are often referred to as "401(k) for health care." Employees can save HSA funds and withdraw them in retirement when health care expenses are likely to be needed the most.

Posted by at August 30, 2015 10:40 AM
  

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