Health Savings Accounts May Reduce Health Insurance Costs

• Publication year: 2005
• Pages: 57

34 Colo.Law. 57 Colorado Bar Journal 2005.

2005, January, Pg. 57. Health Savings Accounts May Reduce Health Insurance Costs

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57

Vol. 34, No. 1, Pg. 57

The Colorado Lawyer
January 2005
Vol. 34, No. 1 [Page 57]

Departments
Law Practice Management
Health Savings Accounts May Reduce Health Insurance Costs
by Angel B. McCall

Angel B. McCall is the part-time executive director of the Arapahoe County Bar Association. With degrees in law firm management and financial planning, she provides members with information on benefits, retirement plans, and risk management. She can be reached at (720) 373-4143

Readers interested in submitting an article for this Department should contact Laura Locke, (303) 271-0222 or laura@lockeatty.com; Sheldon Friedman, (303) 292-5656 or sfriedman@irwl.com; or Denise L. Saathoff, (970) 226-5524 or saathofflaw@comcast.net

A major component of the 2003 Medicare Bill1 was a gift for people under age 65 who want to cut their health insurance bills. The new Healthcare Savings Accounts ("HSAs") are similar to Individual Retirement Accounts ("IRAs"), combining a low-cost, high-deductible insurance policy with a tax-free savings account. People under age 65 (and thus not entitled to Medicare) may buy a qualified health insurance policy in 2005, with a minimum deductible of $1,100 for singles and $2,200 for families Note that these amounts are indexed, and therefore, subject to change by year. Annual out-of-pocket expenses for the deductible and co-payments cannot exceed $5,000 for an individual or $10,000 for a family.

Generally, the higher the deductible, the lower the premium. The cash in the HSA covers the expense of the higher deductible. Although people are used to co-pays, they end up paying more in premiums, co-pays, and co-insurance than they would when paying medical costs with HSA tax-free funds to meet the deductible each year. However, be aware that starting in 2006, the HSA deductible must be satisfied prior to the co-pay system kicking in for drugs and non-preventive office visits. Many group plans are instituting this change immediately.

An Incentive to Control
Healthcare Costs

The hope is that HSAs will put a lid on spiraling healthcare costs by giving insureds an incentive to keep costs down and allowing them to pay deductibles and many non-insured expenses with before-tax dollars. This is how it works.

Insureds open a separate account to which they make fully tax-deductible (or the amount equal to the deductible, if less) contributions up to $2,600 a year for an individual or $5,150 for a family. (Those 55 or older can make additional contributions.) Employer and employee contributions to an employer-sponsored HSA are made pre-tax. Individuals get the tax-free contribution through an above-the-line deduction.

There are no income limitations for HSAs. With a debit card or a check, insureds pay (tax-free) medical expenses. These expenses may include doctors' fees, hospital charges prescription drugs, vision and dental care, qualified long-term-care insurance premiums, and...