Monday, October 20, 2008

Open Enrollment

For many workers this is open enrollment time. Open enrollment is that once a year opportunity to make adjustments to your health plans, assuming your employer offers them. I want to chat specifically about an option that if available, is most often overlooked - the health savings account (HSA) and qualified high deductible health plans (HDHP).

An HSA combines a high deductible insurance plan with a tax favored savings account. In other words, you can have an HSA only if you have a qualified high deductible insurance plan.
  • Qualification: The IRS defines an HDHP as one that has a minimum deductible of $1,100 for singles and $2,200 for families. If you have an HDHP, you can open an HSA (Health Savings Account).

  • Contributions Tax Free: You can contribute money tax free to your HSA for the use of medical expenses (co-pays, deductibles, prescriptions, dental, vision, certain over the counter drugs...even peroxide and cough drops). For 2009 singles can contribute up to $3,000 and non-singles can contribute up to $5,950 - tax free!

  • Earnings Tax Deferred: Various banks and brokerages offer HSAs (your plan or employer may dictate where you have to open your HSA but they all work pretty much the same). Interest and other earnings accumulated in the account are tax deferred. If you spend the money on qualified medical expenses, the earnings are not taxed...ever.

  • It's Yours: There is no use it or lose it provision like the HSA's cousin, the flexible spending account (FSA). The money is yours and does not have to be used by a certain time. The money continues to accumulate until you use it.

  • No Forms To Submit: Depending on the financial institution where you establish the HSA, you can use checks and/or a debit card for transactions.

  • Low Premiums: Because you are taking on more potential medical costs by having a high deductible, premiums are generally much lower than other plans.

  • Portable: The HSA goes with you wherever you go. It's yours!

  • Unused Funds: If you do not use the money in your HSA, you can use the funds in retirement (after age 65) just like you would your 401K or IRA. The distributions will be taxed as regular income, just like 401K distributions in retirement.

Can you tell that I am a big fan of HDHPs? Even though I think they are the best thing since sliced bread, they are not for everyone. The two most common alerts are:

  • If you cannot fund the HSA there is no need to get a HDHP because chances are you won't be able to cover your deductible should you have to.

  • If you are a person prone to sickness and usually need medical care beyond the annual preventative care, an HDHP may not be an option for you either.

Remember to pay attention to everything that impacts your finances. Be vigilant and purposeful about your money. When you begin to do smart things with money, money will begin to do smart things for you.

***if you are currently uninsured, an HDHP may be an affordable option for you.

We'll chat soon...


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