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Alternatives to Health Savings Accounts

by Tony Novak, CPA, MBA, MT
, revised 11/20/2011

If you do not qualify for a health savings account, you are not alone. Most Americans are not eligible for this new benefit; in fact less than one in ten thousand are actually eligible for this tax break. Financial adviser Tony Novak offers these suggestions on alternative ways to save money and achieve similar results.

“Refocus on alternate ways to meet your goals of cutting health insurance costs, saving on out-of-pocket healthcare expenses and saving on taxes. Here are four simple strategies that work for many people:

1. Small businesses can achieve similar results with a Health Reimbursement Arrangement or cafeteria benefit plan.

HRAs that is not subject to the strict insurance regulations of HSAs and actually do not require insurance at all. These plans can be set up by virtually any business for about $600 a year and typically save thousands in insurance costs and wage taxes. (See www.freedombenefits.org for more information).

2. If you are paying rates as billed to your medical providers, enroll in a PPO discount plan.

At less than $200 per year per household, this will likely pay for itself many times over. Preferred provider organizations networks negotiate lower fees with willing providers for its members. (See www.ehealthdiscountplan.com for more information).

3. Enroll in low cost high deductible insurance without the health savings account.

Companies like UnitedHealth One (www.UHCenrollment.com) and Celtic (www.celticenrollment.com) offer low cost health insurance plans with direct online enrollment, rates and application forms. Costs can be cut further by purchasing coverage only for the period you are likely to need the policy. For example, the majority of people who buy health insurance keep the policy for 12 months or less. A 12-month policy is typically priced about 40% less than a longer-term policy.

4. Consider Individual Retirement Accounts and business retirement plans to pay for out-of-pocket medical costs.

Withdrawals are not subject to penalties but may be subject to ordinary income taxes. Use no-transaction-fee IRA accounts to minimize costs and avoid the possibility of an early surrender charge from the investment firm. IRS Publication 3998 (http://www.irs.gov/pub/irs-pdf/p3998.pdf) provides an overview of the possibilities for small businesses. It is relatively easy to incorporate retiree health benefits into an existing regular pension plan, thereby providing access to additional tax-free benefits in the future.”

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