HSAs, while a good product, do have both pros and cons. Of course one of the major difficulties relates to rising health care costs. This isn’t just a problem that your employer deals with or that the insurance company handles. On average, an employee will be paying out from 10% to 90% of their health care costs and that is when all costs are included.
This is a problem that directly affects your paycheck. It’s quite easy to see that over the last few years the economy started going sour. In fact, health care costs have jumped, on average, from 8% to 10% every year for the last three years. This isn’t going to stop anytime soon either.
Another slight problem with HSAs is that some states, and there are about five of them, offer guaranteed issue – health insurance in spite of any pre-existing conditions, age, history of claims or other risk factors. While most people would consider this to be a bonus and appreciate it, this is a bonus that comes with a high price tag.
In other words, if you live in a state that does offer guaranteed issue, it increases the cost of health insurance coverage for everyone in that state because it has to cover those who use the benefits the most. Other states have the ability to deny people coverage during the process of underwriting.
What universal solution is there to difficulties like the ones covered in this article? In most instances, the HSAs provide an equitable solution to just about every situation a person may face. For those that aren’t that familiar with HSAs or how they work, we’re going to include a bit of history.
HSAs are a smart combination of health insurance and a retirement plan and were launched in 2003 as a part of the Medicare Prescription Drug, Improvement and Modernization Act. The whole idea was that the HSAs could be used to save for qualified medical expenses for yourself, spouse or dependent; and it would be tax-free money.
The definition of qualified medical expenses include: Medicare HMO insurance premiums, Medicare Part A or B, eye care, long-term care and chiropractic care. Other medical expenses that are not qualified include funeral expenses, medications, nonprescription drugs, health club dues and cosmetic surgery.
You are only able to make a contribution to an HSA if the health insurance that goes with it has a deductible of at least $2,850 for a single person and/or $5,650 for a family. These costs do tend to vary each year and if you aren’t sure what they are, make it a point to speak to a qualified insurance broker who will provide the current year’s figures. Those who are over the age of 55 are able to contribute an additional amount each year if they so choose.
Remember that all contributions are pre-tax and that adds up to a very nice break on your taxes. In addition, if you use the savings for medical expenses, the whole amount can be taken out tax-free. On the other hand, if you take the money out for other reasons, it is taxed as income and is subject to a penalty of 10% if you’re under 65 years old.
If you’re over 65 and your Medicare kicks in, anything you take out of the HSAs is only taxed as income at the rate you have at that time. Any dividends, savings and all interest are sheltered from taxes. That means your earnings will compound over time – tax-free. Another bonus is that if you don’t use the balance in one year, you get to roll it over to the next.
The ability to roll it over is something that most employees like because it makes their HSAs almost like a retirement plan, meaning they are able to save tax-free money for retirement in addition to a 401(k) and an IRA.
With heath care costs still on the rise, the HSAs are pretty appealing and are actually a win-win situation for both employers and their workers; something that is well worth checking out.
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