I have saved $23,000 and counting thanks to a great option I have taken advantage of with my medical insurance!
In 2003, individual, families, employers and employees were allowed to make tax deductible contributions into a special account known as a Health Savings Account (HSA). In order to be eligible for the savings plan, families need to have a qualified insurance plan with a deductible of at least $2,400 in 2012. This financial planning option combines a tax-deductible savings plan, with a long term medical savings plan.
I have a family medical plan with Blue Cross Blue Shield. My monthly premium is only $435 for my family of five. All of our basic checkups are covered with no money out-of-pocket. My deductible is $5,000 per person and $10,000 for my family. If one of us were to have a major claim, everything in excess of $5,000 is covered 100%. According to a recent USA Today article annual premiums for family health plans hit $15,745.
I have been consulting on insurance for many years and when these plans began being offered I thought this was too good to be true. Typical family insurance plans ($20 co-pay and $500 deductible) have premiums in the $800-$1,200 per month range. With my plan, I save at least $500 per month in premiums over a traditional plan. Every month my claims are less than five hundred dollars, I come out ahead. I save that five hundred per month ($6,250/year now allowable) in my HSA. I love that it’s going in my federally tax-deductible (no income restrictions) savings account and not to the insurance company! When I have qualified medical expenses, I can draw from this account tax-free. Unlike flexible spending accounts, whatever I don’t spend stays in my account and grows tax-free.
Health Savings Account Basics:Health Savings Accounts (HSA) are tax-deductible savings plans that allow a taxpayer to save pre-tax dollars for future healthcare expenses. HSA's are paired with high-deductible health insurance plans. Contributions to an HSA are tax-deductible. Earnings, such as interest and dividends, in the health savings account are tax-exempt at the federal level. Withdrawals from a health savings account are tax-free as long as the funds are used for qualified medical expenses. (See IRS Publication 502, Medical and Dental Expenses for what counts as qualified medical expenses.)
Like any family we have had medical bills along the way. We have made withdrawals from the account to pay for a variety of medical expenses including: couple of broken arms, dental checkups and prescriptions. After those withdrawals, my Health Savings Accounts are still worth over $23,000! I keep at least $5,000 in an HSA interest bearing checking account that is used when I have medical expenses and the rest in invested in mutual funds under the HSA account title. At the pace we are going, I think I might reach an account value of $100,000 by the time reach retirement. That should give me plenty of money to replace a hip or knee if i need to. HSA Savings Calculator
Employers have taken advantage of this as well.
My favorite story is with a Glen Ellyn business that has about 30 employees and had been with BCBS for many years. Before meeting with me, they had a traditional low deductible “Cadillac” plan that cost the employer a fortune in premiums. Believe it or not, when they installed the high deductible plan it saved the employer $100,000 per year in premium. The new qualified plan had the employees move from a $500 deductible to a $2,500 deductible per person and families to a $5,000 family deductible. That would be a lot to ask, but the employer contributed $2,000 to each single employee and $4,000 to each family’s new Health Savings Account. In doing so, the employer gave back around $50,000 to his employees and kept the other $50,000 in premium savings.
How that works:
Prior to the change, if a family member had a doctor appointment it would usually cost the employee a $20 co-pay for the office visit. Under this plan, the employee does not have a co-pay and would receive a bill for the visit. The employee would then pay the bill from the money they have in their HSA. If they spent less than the four thousand dollars that was contributed to the family HSA, that money stays in their account and can be used in the future.
This is a very simple concept (self insure for the smaller claims and save on premiums - use the savings to pay claims and keep the difference) that I have taken full advantage of and you may want to look into it as well. It is uncertain if this will remain a viable plan under Obamacare due to restrictions that are set to change. I am keeping a close eye on this.
If you or your employer have questions about how this may work for you, please contact me (630-942-9007) and I will be glad to answer any questions.
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