One of the joys of joining the ranks of the self-employed here in America is finding all of those benefits that we take for granted as employees. I have been calling and comparing plans today and thought I would share what I had learned.
For those of you that don't know (don't feel bad, I was in this boat just a few hours ago), health savings accounts act just like a savings account and are coupled with high-deductible health insurance policies. Let's take a look at each piece separately:
Health Savings Account
The health savings account itself acts much like a regular savings account, except that contributions are before tax (an above-the-line deduction - it reduces your federal adjusted gross income - the bottom line on the front page of the 1040 Form). Distributions can be used tax-free and penalty-free for the folowing:
- Qualified medical expenses defined by Section 213 of the IRS Code
- COBRA insurance
- Qualified long-term care insurance and expenses
- Health insurance premiums for individuals receiving unemployment compensation
- Medicare and retiree health insurance premiums, but not Medicare Supplement premiums
After age 65, distributions can be taken for anything penalty-free, but you have to pay tax if you do not use the money for one of the above categories.
The maximum HSA contribution for 2007 is $2850 for an individual or $5650 for a family.
The other nice benfit is most HSA plans pay interest on your savings. I have seen 4-6.15%. http://www.ushealthgroup.com/ claims to pay the highest rate at 6.15%, and I have not found any higher. My understanding is that this interest is tax-free if used for medical expenses as well.
High-Deductible Heath Insurance
The high-deductible health insurance is intended to cover larger expenses that you cannot cover with your HSA money. Key things to look for in the insurance coverage:
Make sure providers you plan to use are in network. You get the contract rates (discounts of up to 90% off "list price") and some plans only pay 100% of expenses above the deductible if you use providers in the network. Otherwise you may have to pay 10-20% of the additional cost.
100% coverage above the deductible. Some plans offer lower monthly rates for 80/20 coverage up to a cap. That means you still have to pay 20% of expenses above the deductible up to some cap ($24,000 on the one I saw). If you choose to go 80/20, make sure you can afford the base deductible plus the 20% up to the cap if something bad happens. It's not worth it to me...
Look at the lifetime maximum benefit. $3 million is typical, but I found Celtic Insurance Co. (1-800-477-7990) that has a $7 million maximum.
Confirm all expenses (including office visit and prescriptions) count towards the deductible. There are lower rate plans that exclude certain items.
"Bonus" coverages - as an example, Humana offers $300 of routine wellness coverage per year. This can be a good deal if a) you know that you are going to use it, and b) it costs less than $300 more than comparable coverage from someone else.
Maternity coverage - not an issue for us, but this is something that you typically have to add separately. Make sure you get it if you expect to be expecting :)
Well, that is all I know right now. I hope that information helps other people that might be looking at the HSA option. I certainly welcome any comments you might have on the subject so that we can all learn more.
