This year we switched to a high-deductible health plan that enabled us to open a Health Savings Account (HSA). For 2008, the IRS has the following requirement for HSA-eligible high-deductible health plans:
- Single/Self-Only Coverage
- Minimum Annual Deductible: $1,100 ($1,150 for 2009)
- Maximum Out-of-Pocket Expenses: $5,600 ($5,800 for 2009)
- Family Coverage
- Minimum Annual Deductible: $2,200 ($2,300 for 2009)
- Maximum Out-of-Pocket Expenses: $11,200 ($11,600 for 2009)
On May 1 of last year we had narrowed our choices down to two plans. The first option was to keep the same plan at a cost of $928.49 per month for our family plan with a $25 office visit, $100 emergency, $75 for MRI/CAT/PET scans, $1,000 hospitalization, $250 day surgery and 15/30/50 for prescriptions. The other option was to switch to a $3,000 family deductible plan, before any co-payments for office visits and prescriptions would apply, while hospitalizations and day surgeries would be covered 100 percent after we paid the $3,000 family deductible. We chose the later high deductible health plan with a monthly premium of $854.78 per month.
Although we saved $73.71 per month in premiums and had no planned medical procedures, it was not the reason we went with this plan. We picked a $3,000 family deductible plan to open an HSA, which then allows us to contribute up to $5,800 tax deductible and tax-deferred (individuals can contribute up to $2,900). In the event we do incur any medical expenses through the deductible, we can withdraw money from the Health Savings Account without any tax consequences.
On the other hand if we do not incur any unreimbursed medical expenses, we do not lose the money in our HSA. Money that remains in the HSA is allowed to accumulate tax-deferred and can be withdrawn at any time, but would be taxable just like an IRA, including a 10 percent penalty before age 59.5. In addition, an HSA-eligible participant has until April 15, 2009 to make their contribution.
After eight months, we have:
- Saved $589.68 in premiums
- Incurred no claims towards the deductible
- Contributed $5,800 tax deductible into our HSA
Health Savings Accounts are not for everyone, but it's an option that should not be overlooked. The HSA can be a great way to supplement other retirement plans that may be maxed out, or retirement plans that limit your contributions by those of the rank-and-file.
Lastly keep in mind that most health carriers will allow a company to offer multiple plans. One plan could be a conventional plan, not HSA-eligible. The other could be a high-deductible plan that is HSA eligible.
Comments
Good choices, but one correction. Unlike an IRA, which can be tapped at age 59 1/2, HSA withdrawals for non-medical expenses are penalized up to age 65.
Just a slight correction to your article. You must be 65 years of age before you can withdrawn money from an HSA for non-qualified expenses and not pay the 10% penalty.
Thanks Fran and Ed.
You should also mention the "catch-up" contribution that comes with HSAs. If you are over 55, for 2009 you are allowed to contribute an additional $1,000 into your HSA.
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