Megapolis Insurance

Healthy as we may seem today, we never know when illness can strike. Would switching from a full-coverage plan to a high-deductible health plan with a health savings account (HSA) be a wise decision to make? What if you need to meet a high deductible? You may be surprised to find that when you add up how much you can save on premiums and by reducing your taxes, it could actually cost less even if you do have to pay for health care until a high deductible has been met.

If you have good health and do not need much medical care, a high-deductible insurance plan that has low premiums can be a “no brainer.” If you are in a high tax category, an HSA or Health Savings Account can definitely help lower your federal income tax and state income tax in almost all states. Even though you may have to pay for health care until you meet that high deductible, if you get new coverage now, you won’t have out-of-pocket costs for preventive services. Those are 100-percent covered with health care reform.

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The American Journal of Managed Care published the largest assessment of Health Savings Account plans to date. The new RAND Corporation study showed that Health Savings Account plans significantly cut health spending and motivated patients to cut back on preventive health care.

With more than 800,000 families around the country participating, researchers found that shifting to Health Savings Account plans with deductibles of at least $1,000 correlated with an average drop in health spending of 14 percent compared to families who had health plans with lower deductibles.

At the same time, families that moved to high-deductible plans significantly cut back on preventive health care, included critically needed services. They cut back on cancer screenings and routine tests for diabetes, as well as childhood immunizations.

Amelia M. Haviland, a study co-author and a statistician at the nonprofit RAND research organization said, “This suggests people are cutting both necessary and unnecessary care.”

High-deductible health plans have been on the increase in recent years.

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Although Health Savings Accounts have been around since 2004, many people are still missing out on the tax savings they offer because they don’t understand how a Health Savings Account (HSA) works.

HSA Plans are really simple. They’re so easy to use that you don’t even need to itemize deductions to take advantage of their savings when you file your taxes.

Kathy Pickering of H&R Block says, “You put your money into the Health Savings Account tax free, and then it grows tax free. The interest you earn on it is tax free, and when you take money out for qualified medical expenses, that’s tax free as well.” Any HSA funds you don’t spend on qualified health care, unlike money left in a flexible savings account, just roll over year to year and continue earning tax-free interest.

Pickering points out that: “If you can hold on to your Health Savings Account, say as you lose your job, if you move to a new job, you can still use those funds and then if you can hold on to it until retirement.

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With an IRA, you can’t get to your money until you’re 65, but with a Health Savings Account (HSA), you can use those funds for qualified medical expenses whenever needed and still earn tax-free interest on whatever is left until you turn 65. One of the best things about having an HSA is that your funds roll over at yearend. You never lose the balance like you do with a Flexible Spending Account.

However, there are some limitations with an HSA. Health Savings Accounts have a maximum yearly contribution limit of $3,050 for individual coverage and $6,150 for family coverage. No contribution is every required, but you may make an additional $1,000 contribution each year if your are at least 55 years old. Up to those limits, your contribution is tax deductible whether you need the money for medical care or not. You don’t even need to itemize deductions at take advantage of that. It’s called an “above the line” deduction. Almost all states follow the federal government on this and allow you to take a state tax deduction for your HSA contributions, too.

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