2004-04-15 / Savvy Senior


Dear Savvy Senior,


I just turned 54 and, and work for a small company that provides a terrible health insurance plan with sky-high deductibles. I make a decent salary but my wife was in the hospital several times last year for breast cancer and the medical costs are killing us. I’ve been hearing about these so-called health savings accounts, and wondered if this might be a good option for us.

Deducted To Death Don

Dear Don,

For people with high-deductible health insurance plans, a Health Sav-ings Account (HSA) can be a great option. Created by the 2003 Medicare Act, and currently available, a HSA is tax-free savings account that works like an IRA, except that the money is intended to be used for health care costs.

The idea is for people to use tax-free savings accumulated in the HSA to pay for medical expenses that aren’t covered by their high deductible health plan. And, the money left unspent in their account can be rolled over year-after-year, providing those who are lucky enough to stay healthy with a pot of cash to cover medical expenses when they’re older.

Who’s Eligible

HSAs are available to people under age 65 (or not entitled to Medicare benefits), that are covered by what Uncle Sam calls a "high deductible" health insurance plan, which is a de-ductible of at least $1,000 per year for an individual or $2,000 per year for a family.

Savvy Note: To open or deposit money into a HSA you must be under age 65. But the savings accumulated in a HSA can be used for health care costs at any age.

HSA Contributions

If eligible for a HSA, you are al-lowed to contribute as much as 100 percent of your health plan deductible (up to $2,600 for an individual, and $5,150 for a family policy). If you’re between the ages of 55 and 64 you can contribute an additional $500 in 2004. Employers can also contribute to their employees’ account and HSAs are portable accounts and can move from job-to-job and continue when you retire.

What’s Covered

Health Savings Accounts can be used for your health plan deductible, co-payments and a broad range of "qualifying medical expenses" including:

• Doctors, dentists and hospitals

• Medication

• Eye care, eyeglasses and contacts

• Hearing aids

• Laboratory expenses

• Medicare premiums

• Nursing home costs and long-term care insurance premiums

• Physical therapy

• X-rays

Healthcare premiums are not covered by HSAs, except for long-term care insurance, COBRA and health coverage while receiving unemployment. Premiums are, however, covered for Medicare recipients and seniors over age 65, with other health plans other then a Medigap supplemental po-licy.

HSA Withdrawal Rules: HSAs can be withdrawn to cover medical expenses, but if you stay healthy or die and not use the money, what happens?

• If you are under age 65 and the money is withdrawn for nonmedical expenses, you will pay ordinary taxes on it, plus a 10 percent penalty.

• If you take it out after age 65 and spend it for non-healthcare costs you pay only the taxes, but no penalty.

• If you die before the money is spent, your spouse can still use it for her healthcare costs.

• If the money goes to other heirs, it would be subject to income tax but not to the 10 percent penalty.

Where to find HSAs? Since HSAs are new to the market, they can be hard to find. Insurance companies are currently offering them but beware. Some companies will require you purchase a high-deductible health plan before opening a HSA. You should also check with your employer (if you are in a high-deductible plan) and ask if they are going to offer a HSA. Here are some insurance companies that are cur-rently offering HSAs: Aetna, MSAver, UnitedHealth Group, Destiny Health (only in Illinois and Wisconsin) and some Blue Cross Blue Shield plans.

Send your senior questions to Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit www.savvysenior.org.

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