HEALTH SAVING INSURANCE

Health Insurance:

Most people with health insurance, especially employer paid health insurance, really do not know what their health care costs. Moreover, in many cases, they are limited in which health care professionals (doctors, hospitals, pharmacies, etc.), they can use. 

Most people are locked into a network of doctors. They know what the co-pay is, but have no idea what the doctor actually charges. 

When the insured consumers are hospitalized, they rarely see the bill. They do not know whether the insurer who had paid too much or not. There are firms that audit hospital bills for insurers and self insured businesses. They get paid a percentage on what they save to pay the bill by finding overcharges, duplicate charges and the like. The last I heard these firms were still making lots of money. 

Overcharging, consciously or unconsciously, doctors and hospitals drive up health care costs for everyone. (It makes malpractice suits, but that's another story.) 

Tax benefits: 

  

Giving consumers more direct control over not only their health costs, but in the choice of which doctor they can see or which hospital they can come in, Congress adopted the Health Savings Account Availability Act. From the beginning of 2004 persons who are not otherwise insured, may have Health Savings Accounts (HSA), which carry with them some very attractive tax advantages. 

An individual may establish an HSA for himself or his family. An employer can add an HSA option to the so-called cafeteria benefit plan may already offer. 

Money put into the plan before taxes, including Social Security, if part of an employer plan. Otherwise it is an over-the-line deduction, which means you do not need to enter your deduction for the tax credit and deduction are not subject to phase-out rules that make many itemized deductions unavailable to high incomes. 

The plan is set up as an IRA. A trustee is approved by the tax authorities to be used. Money put in the plan are tax free and funds withdrawn for qualified medical expenses are also tax free. Unlike the older Flexible Savings Accounts are offered in the employer's cafeteria plan, you need not spend the money put into the account at year-end or otherwise lose whatever left. Money can be transferred from year to year. This may allow for a nice chunk of money to accumulate, which can withdraw tax free at the age of 65 years. 

To qualify the individual or family must buy a high-deducible health insurance policy. These are special policies that have a minimum deductible of $ 1,000 to a maximum of $ 5000 for an individual and $ 2000 to $ 10,000 for a family. The higher the deductible, the lower the premium. 

Individuals can deduct the lesser of $ 2,250 or the deductible on the policy: for married couples or families, it is twice as high. If more than 55 years, the deduction is $ 600 higher for individual and $ 1,200 higher for couples and will continue to grow to $ 100 per year until 2009, when it will be limited to $ 1,000 for individuals and $ 2000 for families. 

Money in the HSA can not be used to pay premiums for this policy, except in certain circumstances (basically, when you're unemployed). It is designed to meet the deductible, co-pays, drug costs, eyeglasses and other medical costs that may appear on an individual tax return as a medical expense. 

Money back by qualified medical expenses are taxed as income and subject to a 10% penalty unless the owner is disabled or over 65 years. Money because of death are included in the taxable estate. 

There are no income limits for this plan. If started early, when you are young and healthy a substantial part of the money could accumulate either to meet higher medical costs, as you get older, or be used to supplement your income. 

It pays to compare costs of this plan with what your insurance, you have now. It may prove that your employer plan is still cheaper, and you might want to keep it. Or you can consider HSA's for their portability (you carry it from job to job without any cost or loss of all contributions) and the tax advantage of having a second vehicle, shelter income and capital growth, while giving you more control over costs and quality of your doctor.