Guest blog by JoAnn M. Laing
Author of CONSUMERS GUIDE TO HSAS and SMALL BUSINESS GT HSAS 2ED
Watch her interview on The Woman's Connection YouTube Vlog
Many Personal, Professional Reasons Health Savings Accounts Are For Women (and Men too)
Besides being good for their companies, Health Savings Accounts (HSAs) address several needs simultaneously for many women and their families.
Besides offering an extremely flexible approach to tax and retirement planning, it also provides economical healthcare coverage particularly in two-career marriages and can ease the burden of single-parent households as well.
The HSA program has two parts: a high-deductible health plan (which usually costs less than other health plans) and a tax-advantaged, portable savings account for payment of current medical expenses which builds like a Medical IRA.
One important feature is that a spouse or dependents covered by other insurance may not be able to participate. However, an individual may still be able to use another family member's HSA funds to pay for their qualifying medical expenses tax-free.
The added bonus is that monies paid by companies to fund HSAs for employees are pre-tax dollars and do not get reported as income for employees. At the same time, HSA monies can pickup copays not picked up by spousal healthcare plans.
For company owners, this means a double savings --- they can deduct the amount paid for their own qualifying high deductible healthcare plan and they have no personal income tax liabilities for the monies paid into their account. They also do not pay FICA and FUDA on any of payments made for themselves or other employees. For the self-employed, they can deduct the cost of the insurance premium and amount contributed to the HSA.
A major impetus for HSAs was to reduce the soaring rate of healthcare. By making the individual a part of the medical services decision process, HSAs are designed to help manage medical expenses and reduce the yearly rate rise of health care expenses. On average, an HSA insurance policy (called an HDHC plan) will save between 20-30% in premiums.
Retirement Programs Encouraged
Another aim was adding a self-directed retirement offering to the retirement planning agenda. HSAs have the effect of adding another retirement option because the money not spent in any year remains part of the individual's retirement account.
To encourage companies to teach retirement planning, HSAs are portable. HSA monies remain in the account even if the employee leaves their present employer thereby building up a nest egg. Like 401Ks and IRAs, building a nest egg requires someone to start. Once started, they usually become a permanent part of the individual's savings program.
Another reason HSAs can be helpful to executive women and others, the procedures covered by HSAs monies have been broadened. HSAs can pay for many more procedures than were ever allowed before by government-sponsored programs, for instance, laser eye surgery. (A complete list can be found on www.HSAfinder.com or www.irs.gov websites.)
Some HSA Advantages
To briefly summarize HSAs and their advantages:
§ A way to save money on health care. Sooner or later everyone will have to spend money on health care. But an HSA might help them spend less.
§ A tax saver. Not only does an HSA cover medical costs tax-free, but contributions to the account may nudge an individual into a lower tax bracket. This is particularly true with dual-worker families.
§ A way to pay for health care traditional insurance might not cover. An HSA can be used to pay tax-free for acupuncture, visits to the chiropractor, fertility treatments, therapy, smoking cessation, and weight loss programs - just to name a few.
§ Portable. HSAs can travel with the individual from job to job. He or she always have a right to 100% of the money in the account.
§ A source of investment income. HSAs are designed so that the individual can always withdraw money when needed. But the money not withdrawn has the potential to grow and accumulate interest tax-free. Many higher income families will pay for medical services with post-tax dollars and leave funds in the HSA to grow without tax on the interest or investment income.
§ An improved retirement account. HSAs function much like 401(k)s or IRAs, but with an important difference. When money is put in a typical retirement account, it's there to stay - an individual could forfeit as much as a third of it in tax penalties if withdrawn it before reaching retirement age. With an HSA, money used for medical expenses, can be withdrawn tax-free. HSAs don't replace current retirement accounts, but they can be a major supplement to retirement savings.
§ Money in your pocket. To participate in an HSA, an individual must be enrolled in a high-deductible health plan (HDHP). What is different is that payment programs are more liberal. You need to talk to your insurance agent and study the various plan options closely.
Broadly speaking, an individual or family qualifies for an HSA if they are:
§ under the age of 65,
§ not listed as someone else's dependent for income tax purposes,
§ not receiving Medicare or Social Security benefits,
§ covered by a high-deductible health plan, and
§ not covered by any other type of health insurance plan, except for some significant differences which are listed elsewhere in this article.
For executive women in particular, HSAs offer an excellent approach to reducing costs and improving retirement options for themselves and their employees.
Some of the supplemental policies that are permitted with HSAs include:
- Separate dental and/or vision care insurance, or flexible spending accounts (FSAs) covering only dental and/or vision care
- Discount cards for health care services or products (for example, prescription drugs)
- Disease management and wellness programs, as long as they do not "provide significant benefits in the nature of medical care"
- Employee assistance plans, again if they do not "provide significant benefits" (short-term counseling is okay)
- FSAs or HRAs that pay or reimburse for medical expenses after a high deductible has been met*
- Separate long-term care insurance
- Worker's compensation insurance (through employers)
- Disability insurance (individual or through unions or employment)
- Automobile insurance (including coverage for medical care in accidents and emergencies)
- Business liability insurance
- Insurance that pays for fixed amount of hospitalization
- Freestanding health insurance for travel (such as flight insurance or automatic travel coverage when transport is booked on a credit card).