Health Savings Accounts

I’m in the process of setting up an HSA for me and my wife. If you are relatively healthy, they can be a great deal, especially for startups.

However, they are virtually unknown by the mainstream. It will take roughly three weeks to apply for the High Deductible Insurance Plan.

Health Savings Accounts (HSA) allow you to put away pre-tax dollars to fund future medical expenses. Any money you do not use can be rolled over to the next year. That roll-over money can be used for any medical expenses over time or eventually, retirement.

PROS:

  • Any money you put into the HSA becomes an “above the line” tax deduction. You don’t have to worry about your adjusted gross income, it comes right off the top.
  • Just like a 401k, any money you put in is yours, for life. You can take it with you.
  • You can put away up to $2700 in 2006 for an individual and $5450 for a family. Tax free. This is a big savings. Example, if you have a Roth for you and your wife ($4k contribution limit each) plus a $5000 deductible HSA, you can sock away $13,000 pretax savings.
  • You can invest your HAS in a variety of different options (depending on the HSA provider)
  • You can go to any doctor you want.

CONS:

  • You must have a High Deductible Health Insurance in order to open or contribute to an HSA.
  • There are not a lot of choices out there for HSA providers.
  • Getting the accounts setup is confusing.
  • If you are covered under group insurance (even through your spouse) you are not eligible.
  • If you own more than 2% of a S Corporation, there are special rules.

High deductible plan

You can only use an HSA with a high-deductible insurance plan. Let’s say your deductible is $5000 — that means you pay for ALL medical expenses come out of your own pocket up to $5000 for the year. Anything beyond that is paid for by your insurance firm.

To setup the insurance plan it will take roughly three weeks while the insurance company vets the application. You can sign up at ehealthinsurance.com, or any number of online brokers. Once you have your insurance cards, you can open up the savings account.

Be sure to get one with a debit card. If you are like me, you don’t have a lot of medical expenses. But when you do, you want a convenient way to spend the money. With the debit card, you just swipe the card to charge your doctor, dentist, optometrist, or pharmacy.

HDHP/HSA SHOPPING TIPS

Look for a “portable” HDHP. Once you cross state lines you must cancel the old plan and get a new one, unless the health insurance plan is “portable.” Humana has one, but doesn’t offer it in Minnesota (where I am currently). Considering that there is an 18 month wait for maternity benefits… the clock starts over when you move state to state unless the policy is “portable.”

Avoid Well’s Fargo HSA
. The local branch didn’t know anything about their HSA, and a little research showed that the HSAs are offered out of a small entity in California. Getting money in and out is highly manual. Conversely, I’ve heard excellent things online (so take it with a grain of salt) about HSA Bank.

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