The new health savings accounts.

• Author: Schnepper, Jeff A.
• Position: Economic Observer

I AM LOOKING FOR A JOB just to get company paid health insurance. Some of my clients are thinking about selling their companies since the cost of health insurance as an employee benefit has smothered their bottom lines. Face it. You are going to pay more to insure your health. If you can afford it, that means more money out of your pocket. If you can't, that means you go without coverage.

Let's add some more to the equation. Remember the Baby Boom generation? There are millions of individuals entering into an age where health coverage is on top of their list of demands. How about the constant introduction of new drugs to extend life and the quality of life? More people demanding more drugs. My recollection of supply and demand says that is going to create higher prices. If the price of health care is going up, so too is the cost of health insurance. What to do?

Like too many other problems, we look to government for assistance. This time, though, Congress got it right--finally! It actually used the tax code to reduce the cost of health insurance for just about everyone. Tax deductible going in, and no taxes when you take it out! it does not get much better than that. I am referring, of course, to the new Health Savings Accounts (HSAs) that were created last year as part of the Medicare Act.

The concept is easy. Congress wants to put you in charge of your own health costs. So, if you buy their special ticket, you will be able to set up a magical account. You will put money into that account and be able to deduct it. There is no tax while the money is held by the account. And, if you take the dollars out for the right reasons, there is no tax when you empty the account.

Technically, it is a bit more complicated. Let's start with the special ticket. In order to qualify to open a Health Savings Account, you have to be covered by a high deductible health plan. It must be your only health plan. (There are some exceptions--for instance, workers' compensation, coverage under an auto policy, etc.) The annual deductible cannot be less than $1,000 for individual coverage or $2,000 for family. Remember, the bigger the deductible, the smaller the premium you have to pay. In addition, the sum of the annual deductible and other out of pocket expenses required to be paid under the plan cannot exceed $5,000 for individual or $10,000 for family coverage.

If you have this special ticket, what does it let you do? For starters, you can set up a Health Savings...