Tax-advantaged health accounts can help you save on medical costs
They won't magically solve the problem of rising healthcare costs, and they won't work for everyone. But more Americans should become familiar with health savings accounts.
Few are. A survey by the Kaiser Family Foundation in February found that 45 percent of Americans had not even heard about HSAs, which have been available since 2004. Another 24 percent had heard of HSAs but did not know what they are.
HSAs are tax-advantaged accounts that allow people not eligible for Medicare to set aside money for future healthcare expenses. To be eligible, your only health insurance must be a high-deductible policy.
(For 2006, the deductible must be at least $1,050 for single coverage and $2,100 for family coverage. Nearly 3.2 million Americans were covered by HSA-eligible policies as of January, according to the industry group America's Health Insurance Plans.)
The idea behind HSAs is that, by accepting a higher deductible, you can lower your premium. Then you set aside the money you save in the health savings account.
Proponents of HSAs say they encourage consumers to shop wisely for medical care and drive down costs. Opponents claim they benefit only the young, well off and healthy, and may discourage people on tight budgets to seek needed care.
Whatever your point of view, consider the problem: According to an annual estimate by Fidelity Investments, a 65-year-old couple retiring this year without employer-sponsored retiree health insurance needs $200,000 just to cover medical costs in retirement.
This estimate, up an average of 5.8 percent a year since 2002, includes the cost of Medicare Part B and Part D premiums, co-payments, deductibles and excluded benefits, and of out-of-pocket costs for prescription drugs. It does not even include the cost of over-the-counter medications, most dental services and, if needed, long-term care.
Conclusion: With insurance premiums rising more than three times faster than salaries, Americans ``should be calculating and factoring life-long healthcare expenses into their overall financial planning," said Fidelity's Brad Kimler.
One tool is the health savings account. For 2006, account holders can contribute the lesser of their policy deductible or $2,700 for individual coverage or $5,450 for family coverage.
People 55 and over can make an additional $700 catch-up contribution.
``An HSA may not make sense for everyone, but the emerging trend is clearly toward coverage of catastrophic or major expenses rather than all expenses, and putting medical dollars in the hands of consumers to use how they see fit," said Mari Adam, a certified financial planner in Boca Raton, Fla., who has a health savings account. Adam, 48, figures she's saving $200 a month or more in premiums on her policy, and, based on her $1,800 deductible, can contribute $450 each quarter to her account.
``In essence, you are buying real health insurance rather than prepaying [through a higher premium] for medical services you might or might not need," said Vita Nelson, editor of the newsletter The Moneypaper. ``But the out-of-pocket expenses can be a rude shock if you're used to traditional health coverage" with a low deductible, Nelson said. That's a key point: While it is not mandatory, you want to fund the health savings account to the max so you can handle expenses as they come.
The money you deposit in the account is tax-deductible, grows tax-deferred, and can be withdrawn tax-free at any time for qualified healthcare expenses, including those not covered by the insurance policy, such as eye exams or long-term care.
``We call it the triple advantage: You put it in tax-free, it grows tax-free, and you pull it out tax-free," said Bob Hurley, vice president of eHealthInsurance.com, an insurance broker. Once you are 65, you can take the money out for any reason without penalties, although you will owe ordinary income tax. (Before 65, there is a 10 percent penalty on withdrawals for nonmedical purposes.)
Get help online
For a list of insurers that offer eligible policies and of financial institutions with HSAs, check these websites:
www.healthdecisions.org/HSA
www.hasinsider.com
Humberto Cruz is a columnist for the South Florida Sun-Sentinel. 
