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Tony Novak, CPA, MBA, MT
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21 reasons to love Health Savings Accounts
by Tony Novak, CPA, MBA, MT
, revised 11/16/11
Health Savings Accounts represent a spot of sunshine in an otherwise gloomy horizon of consumer health care finance. They provide a financial benefit to the relatively few people who use them; estimated at only about 10 million or about 1 in 30 people in the U.S. Their growing popularity is limited by the requirement to replace existing health insurance with a high deductible health insurance and the need to be more involved in managing personal health care expenses. For those who have managed to enroll in a Health Savings Account plan, here are some of the benefits they enjoy:
- Health insurance premiums are lower than the cost of traditional health insurance. The average premium reduction is 20-30% as compared too traditional health insurance.
- The “benefits payout ratio” – the average amount of actual cash received by the covered person for every dollar paid for health benefits – is significantly higher for HSAs than for traditional health plans.
- It is not necessary to depend on an insurance company to determine what medical benefits are covered. The use of money in an HSA is at each owner’s discretion. The IRS allows a wider range of items to be covered in a HSA than most health insurance companies allow under traditional health insurance plans.
- Dental, vision and other ancillary health expenses can be covered without buying additional insurance.
- The underlying indemnity-type medical insurance allows the widest range of treatment options in the event of a serious medical problem.
- Coverage is effective with any doctor or hospital worldwide; there are no in-network requirements.
- There are no requirements to obtain pre-authorizations for routine care. It is not necessary to get a referral or obtain the insurance company’s approval prior to receiving treatment.
- Personal physicians may provide a higher level of service and personal attention to patients in a HSA plan because they know that the care is not under the restrictive guidelines of managed care plans.
- It may be easier for a HSA patient to schedule a doctor’s appointment in a private physician’s practice. Independent medical offices tend to prefer these patients because of their ability to make immediate full payment for service.
- Unlike other traditional health insurance, those who are perfectly healthy and do not receive medical care still benefit from this type of health plan.
- The HSA financially rewards those who are healthy by allowing the owner to keep the money paid into the HSA account to accumulate year after year.
- HSA accounts are individually owned and self-directed. The individual owners can choose their own investments, including a range of no-load mutual funds. An employer has no access to information or control over the HSA account.
- The principal balance may be held in a guaranteed fixed interest rate investment option.
- Interest rates in an HSA account are higher than available in many other types of savings accounts.
- Investment returns within a HSA may be higher than many other investment accounts because HSAs do not have built-in investment commissions or asset management fees.
- Most HSA accounts have no administrative fees so money grows faster than in an IRA or other savings or investment account.
- Interest or investment gains are tax free. This is far better tax treatment than the tax-deferred feature of IRAs or 401(k) plans.
- An HSA participant can deduct 100% of their contributions from taxable income regardless of whether they choose to itemize other tax deductions.
- Long-term care insurance can be paid with tax-deductible payments or the tax-free income from an HSA.
- Excess HSA money can be used to supplement retirement income or provide a cushion for nursing and home health care in the final years of life.
- The HSA owner may name a beneficiary to receive the excess funds that are not spend during our lifetime. A spouse is eligible to receive this transfer tax-free. If a beneficiary is not named, the HSA balance becomes part of the owner’s estate to be distributed to heirs.
Health Savings Accounts are not for everyone. They are not appropriate where management of care is the primary concern. We cover this topic in a separate article “Who should avoid using a Health Savings Account” and “Alternatives to Health Savings Accounts“.
Small businesses may utilize Health Reimbursement Arrangements (HRAs) or Section 125 cafeteria benefit plans with better results. SeeFreedomBenefits.org for more information
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