While the end of the year brings a flurry of shopping decisions (Can I get away with buying Uncle Charlie another tie?), some choices are even more daunting: health care plans.
Fall is usually open-enrollment time, and workers may see an option called a Health Savings Account, or HSA, for the first time. It's an alternative to traditional health insurance that gives consumers a way to pay for their own health care while reaping tax benefits.
These HSAs allow consumers to save money in an interest-bearing savings account set aside for health care expenses. HSAs come with a high-deductible health plan. Monthly premiums are lower because the deductibles are high, with minimums of $1,100 for an individual or $2,200 for a family.
The up side is that the lower monthly premiums make it easier for consumers to make contributions to their HSA. When the time comes to spend the money, health care costs are paid for out of the HSA account with pre-tax dollars. The funds in HSAs roll over from year to year.
Choosing an HSA could result in serious savings on monthly premiums, and some employers are even kicking in matching money, similar to a 401(k), Kiplinger reported.
The down side is saving enough money in the HSA to cover the high deductible.
According to Hewitt Associates, 20 percent of U.S. employers will offer high-deductible plans by the end of the year, but about half anticipate doing so in the future. Participation is not as high as some observers had predicted. Just 3 percent of employees chose such plans last year.
Anyone under age 65 who buys a high-deductible policy meeting IRS requirements can open an HSA. People can buy these policies on their own, through banks, credit unions or insurance companies, or through their employer.
Andrew Housser, a co-founder and CEO of Bills.com, suggested that families switching to an HSA to save the difference in their monthly premium. Putting that money into the HSA would amount to stockpiling savings without a change in lifestyle. He advises automating the process, through checking account deductions.
The 2008 rules allow contributions of up to $2,900 for individuals or $5,800 for families.
Peter Ferrigno, president and CEO of Alexander & Richardson, a Warren, N.J.-based marketing and communications company, said rising health-care costs forced the company into high deductible health plans. The company contributes $500 to each employee's deductible.
âOutside of rent, health insurance is probably our single largest cost,â Ferrigno told the Courier News. âIt seems over the last three, four years, we've had double-digit increases, year after year. You look at the package you have and try to tweak it to find that magic formula every year and many times you have to give up something to make it affordable.â
Kiplinger reported that the longer you can keep the money in the HSA, the bigger the tax benefits. You can contribute pre-tax money to the account, where it grows tax deferred and can then be used tax free for medical expenseââa triple tax benefit that's tough to find anywhere else.â
A state-by-state list of health insurance companies that offer HSA-eligible plans can be found at hsainsider.com or www.healthdecisions.org/hsa/.