Create an account to take advantage of all benefits cashdoctor.com has to offer. It’s fast, easy and FREE
by Rob Stehlin - Founder CashDoctor.com
As the Founder of CashDoctor.com and an independent health insurance agent for the past 10 years I often get asked, “What type of health insurance do YOU have?” Real Simple, I personally have a Health Savings Account (HSA) and have had it since January 2004. I absolutely love it!
Every single dollar that I contribute into my HSA every year is deductible on the front of my personal 1040 tax return (up to certain annual limits imposed by the IRS – for 2013 the maximum deductible HSA contribution is $3,250 for singles and $6,450 for families with those age 55 or over getting an extra $1,000 allotted maximum contribution amount).
This HSA contribution deduction is great because it is an “above the line” deduction meaning that it is deducted before
arriving at your Adjusted Gross Income (AGI) number. To make this deduction even better there are absolutely no income
phaseouts for the HSA contribution deduction so you could be Bill Gates or Warren Buffet and still take the full HSA
The more money you make the more attractive this deduction is to you.
All of the money in my Health Savings Account grows tax free as long as I use the money in the account for qualified medical expenses or wait until I am age 65 or older and use it for my retirement. Yes, you heard me right “Tax Free” not just “Tax Deferred” as you may be accustomed to hearing about with a 401K or other similar tax deferred account.
Another reason I love my HSA is that the HSA itself is simply a savings account with some special paperwork so that it receives special treatment from the IRS. The HSA itself is NOT health insurance but is simply the second component of what is commonly thought of as a HSA health insurance plan with the first component being a high deductible health insurance plan (according to the IRS a high deductible health insurance plan is any health plan with a deductible of at least $1,250 for singles and $2,500 for families – so still pretty low minimums).
What this means is that many different banks offer Health Savings Accounts and you can choose the bank that you prefer to set up your HSA and then buy your high deductible health insurance plan from any insurance company that you like. You can even purchase a plan from United Healthcare one year and then shop around in year two and switch to a potentially cheaper plan with Humana and then in year three switch to Blue Cross Blue Shield, etc.
This ability to constantly comparison shop and not be tied to one particular insurance provider is a great benefit to an HSA (as your actual savings account component of the plan still stays with your original bank).
The higher the deductible is on your health insurance plan then the lower your monthly premium payments will be. Since a high deductible health insurance plan is a requirement for opening a Health Savings Account then one of the nice things about the plans is that the monthly premiums are comparatively very low! I would much rather save a large sum of money every month by paying less in premiums each month than paying extra for a very low deductible and co-pays.
The beautiful thing about an Health Savings Account as compared to a flexible spending account that while Flex Spending Accounts require you to use up the money in the account every year all of the money that you contribute to an HSA rolls over from year to year.
In fact, as mentioned above, even if you don’t end up using the money in your HSA for medical expenses (a good thing!) then when you reach age 65 you can withdraw the money tax free for your retirement. Most HSA custodians will give you an option to place your HSA money into a savings account, investment account, etc. as the decision is up to you as to where you place your HSA account money.
Admittedly some people simply sleep better at night knowing that they have a very low deductible and low co-pays for things like doctor’s visits and prescriptions and I understand that but I like to think of it like this - After your first year of contributing the maximum to your HSA then unless you use up all of the money with a large unforeseen medical bill then you will have enough money in your HSA for years two and on that even if you have to meet your deductible then as long as your HSA health insurance plan covers all expenses 100% once the deductible is met then you effectively have zero out of pocket costs because you already have the money in your HSA account!
Sure, if you start an HSA tomorrow and you have only contributed a couple hundred dollars into the account so far and you get hit with a big medical bill then you will have to come out of pocket for your deductible amount but once you have maxed out your HSA contribution for a year or two then you are essentially home free with potentially no additional out of pocket costs even for large medical bills!
If you can open a savings account then you can open a Health Savings Account just as easily. If you can apply for a regular
health insurance plan then you can apply for a high deductible health insurance plan just as easily.
Almost every bank has HSA’s available and almost every health insurance company has high deductible health insurance plans available. Setting up an HSA is so easy that I probably took twice as long to write this article as it would take you to apply for both a Health Savings Account at your bank and a high deductible health insurance plan at your health insurance company.
The HSA allows consumers to use their HSA funds as if they are CASH BUYERS. Over the past 2-3 years, the “CASH PRICE” paid to doctors, surgical centers, labs, MRI’s and other forms of healthcare providers has dropped below the PPO price and in many cases BELOW the reimbursement rates of medicare. Lower cost is a windfall for the HSA owner because you are using less money from your HSA and receiving the same service. You can do this with IN NETWORK and OUT OF NETWORK doctors. Simply just tell them you are CASH PAY and ask for their best price - you can compare this to medicare rates by visiting the Medicare website . Tell the doctor you will pay at time of service and they are always willing to give you a better price than the network. Pay at time of service and only file a claim with the carrier if you are going to reach the deductible. If you are in network, you automatically get 100% of your payment against deductible (once you file with the carrier). If you are out of network, you will need to check to see how the price you paid will be applied against deductible and max out of pocket. Many carriers are now allowing 100% against deductible and max out of pocket if the price paid is comparable to medicare reimbursements. An example would be SeeChange Health Insurance of CA using a factor of 110% or less of the medicare reimbursement rate.