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Savvy Senior
My wife and I would like to retire next year but are concerned about finding affordable health insurance. We are both in our late 50’s and will lose our company insurance when we retire. I’ve read that health-savings accounts may be a good thing for people in our situation. Can you tell me about this? Healthy but Uninsured Dear Uninsured, For early retirees who are healthy, a health-savings account (HSA) can be a smart option to help lower your insurance costs while you wait for your Medicare coverage. Here’s what you should know: HSA The biggest reason more people don’t retire before age 65 is lack of health insurance. Unless your former employer provides you retiree health insurance or you take a part time job that provides some coverage, you’re pretty much on your own. If you’re thinking about buying health insurance on your own, you can lower your premiums significantly by raising your ded-uctible, which is where an HSA can come in handy. Created by the 2003 Medicare Act, an HSA is tax-free savings account that’s tied to a high- deductible health plan. How it works is you first purchase a health insurance policy with a deductible of at least $1,000 for an individual or $2,000 for a family. Then you open a HSA, which is a tax-sheltered savings account (similar to an IRA) that you can withdraw from anytime, tax-free, to pay for medical expenses that aren’t covered by your high deductible health plan. And, whatever money you don’t use rolls over from year-to-year, providing you with a stash of cash for your later retirement years. Each year you can fund your HSA with tax-deductible contributions, which in 2006 can be up to the amount of the deductible, but not more than $2,700 for individuals or $5,450 for families, and if you’re 55 and older, you can make an additional contribution of $700. What’s Covered? HSAs can be used to pay your health plan deductible, co-payments and a broad range of qualifying medical expenses including: • Doctors, dentists and hospitals. • Prescription and over-the-counter drugs. • Eye care, eyeglasses and contacts. • Hearing aids. • Laboratory expenses and X-rays. • Medically related transportation and lodging. • Medicare premiums. • Nursing home costs and long-term care insurance. • Physical therapy, chiropractic care, psychoanalysis and acupuncture. • Self-pay for COBRA health care continuation when you leave a job. Things to Know • To open and contribute to an HSA, you cannot be enrolled in Medicare and must be covered by a qualified high deductible health plan (without other medical coverage). • If you withdraw money from your HSA before age 65 for nonmedical expenses, you will pay income taxes plus a 10 percent penalty. After 65, such withdrawals are treated as retirement income and are subject to normal income tax, but no penalty. • If you die, your spouse can inherit your HSA free of taxes. However, if the money goes to other heirs, it would be subject to income tax. • To find a HSA plan visit www.hsainsider.com, who provides a comprehensive list of insurers in each state. Another resource to help you compare several companies HAS policies is www.ehealthinsurance.com. • When choosing a HSA, pay attention to fees and the investment choices offered. Some providers offer HSAs free while others charge more than $ 100 in the first year. Savvy Tip : HSAs are best suited for healthier people who typically don’t spend a lot on medical care. To help determine what’s best for you, add up one year of out-of-pocket costs under your current health plan (including premiums, deductibles, co-pays and uncovered medical expenses) and compare it to what you would have paid with a high deductible health plan and a HSA. Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit www.savvysenior.org. Miller is a regular contributor to the NBC Today Show and author of “The Savvy Senior” book.
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