Health Savings Accounts: Affordable Alternative to ObamaCare
Many of the new taxes mandated by Obamacare have been widely covered. From medical device taxes to the recent revelations of a $63 per head fee on policyholders, taxes are increasing and healthcare costs continue to rise.
But a little noticed change in policy is actually making some Americans’ tax season just a little bit better. Here is how: Health Savings Accounts (HSA).
HSAs are tax-advantaged savings accounts used for health expenses, to meet your insurance deductible. Nearly 15 million Americans have adopted HSA plans in recent years. These HSA accountholders will collectively save $2.3 billion for the 2012 tax year.
During the debate over Obamacare, many experts feared that its enactment would destroy Health Savings Accounts. But in a surprise turn of events, the exact opposite appears to have happened.
It has become clear—even to President Obama—that in the near future HSAs will be the most “affordable” options in the “Affordable” Health Care Act. As a result, the administration is clearing the way for HSAs to be the low cost option on public exchanges.
HSAs work by combining a tax-advantaged savings account with a low cost health care insurance policy. Policyholders utilize money in the savings account to cover a substantial portion of the day-to-day costs such as doctor visits and prescriptions, but once they hit the deductible, the insurance policy kicks in. Money not spent in a calendar year is still available the next year and grows over time.
The cost savings that come from HSAs are realized in the lower premiums for HSA qualified health plans. There is a 100% chance that an individual will pay the premiums of a higher cost plan; but the likelihood of spending that same amount in an HSA is far less. The Kaiser/HRET 2012 Employer Health Benefits Survey shows a savings of nearly $2700 per family--not to mention that many employers kick in another $1600 to help families cover out of pocket expenses.
Higher deductibles may be scary to some people. In reality, large outlays are actually much less likely than feared and can be controlled. HSAs are actually very good insurance if catastrophe strikes; the average out of pocket max is less than $7,500 according to Kaiser. That’s $7500 out of pocket only if catastrophe strikes compared with the thousands more paid year after year for more expensive premium plans. And by banking the savings difference between an HSA plan and high premium plans, HSA owners have ready resources to meet today’s need and gain confidence that they can take control of their own health care future.
The benefits of an HSA aren’t limited to lowering health insurance costs or reducing your tax bill today. There are long-term benefits as well. While HSA deposits reduce your taxable income for the year they are deposited--they also grow tax-free. Unlike 401(k)’s and IRAs, HSAs are not taxed, even in retirement, as long as they are used to pay for qualified medical expenses.
And after age 65, if you have saved more than you need for retirement medical expenses, the IRS allows money from HSAs to be taxed at the retirement tax rate for any purpose, without penalty.
These savings will be crucial. With federal government expenditures on Medicare soaring, the percentage of healthcare costs covered by Medicare is more likely to decrease than to increase. Even at today’s rates, a healthy 52-year-old female expecting to live 20 years in retirement in Florida will have medical costs of $251,000 with Medicare covering only $164,000—an $86,000 deficit.
An HSA savings account could enable her to utilize tax-advantaged funds to cover the additional costs.
If you are wondering about your own forecast, you can try the free tool yourself at healthsavingscheckup.com. But brace yourself for the news--and if you don’t stay healthy, it gets worse.
The reality is that the world we live in is the world we live in. Healthcare costs are soaring. Taxes are going up. But we can take steps to mitigate the impact on our own families.
Study after study shows HSAs reducing costs while improving health. Its no wonder that Dr. Ben Carson, the prominent Johns-Hopkins neurosurgeon, recently proposed giving a lifelong HSA-like account to every baby born to reduce healthcare costs.
To be sure, HSAs may play a vital role in reforming national healthcare costs and taxes it the future. But here and now, smart shoppers are already taking advantage of the benefits they bring.
Todd Berkley is President of Berkley Consulting, and a consultant to the American Bankers Association's HSA Council