Berko: Use a health savings account?
Friday, October 04, 2013 7:00 AM
Dear Mr. Berko:
Why do medical costs keep going higher and higher? I just spent $350 to have a cut stitched in my finger at the emergency room. What do you think about health savings accounts? My employer is offering one. I’m 56, so what happens to the unspent money if I die? Can it go to my kids?
B.D., Joliet, Ill.
Any industry in which the federal government pays the bills usually breeds corruption. And as the government’s funding of an activity increases, corruption of that activity becomes more rampant. It follows that as government funding of an activity increases, prices rise to accommodate the increase in funds. This is as immutable as the laws of relativity, gravity and entropy. Observe our public education system (note college costs), the Pentagon, the food stamp program, farm support programs, federally insured student loans, Federal Housing Administration mortgages, etc. During the past 30 years, the pandemic fraud has waterlogged our health care system. So as Congress continues to pump and dump dollars into insurance programs, hospitals, physicians, rehab centers, imaging centers, drug companies, medical device makers, testing laboratories, etc., prices will rise to greet the increasing government largesse. Because the vested interests are so powerful (health care lobby), a patient’s bill for a bandage and an aspirin will reach $25 soon. Today hospitals bill $90 for a simple saline drip, and we don’t give a fig because the government or a third party pays the bill, not the patient. This is a Catch-44, which is twice as bad as a Catch-22, because there’s currently no acceptable solution. It’s amazing how much health insurance increases your health care bill.
Because there’s no solution, some employers, looking for ways to lower expenses, offer health savings accounts, or HSAs, to employees. I heartily approve of them. So your employer may offer you a high-deductible health insurance policy. “High-deductible” means $1,250 for individual coverage and $2,500 for family coverage. Take it, if you can, and you’ll be able to make pretax contributions to your HSA of up to $3,250 annually if you have single coverage and up to $6,450 for family coverage. And if you’re 55 or older, the Internal Revenue Service allows annual contributions of an additional $1,000. HSA contribution amounts, in most cases, can equal the difference between the premium you would pay if you had high-deductible coverage and the premium you would pay if you had nearly zero-deductible coverage. Meanwhile, you have until April 2014 to fund your HSA for 2013.
You can spend your HSA funds tax-free for any out-of-pocket medical costs not covered by your insurance policy, and most HSA plans provide a debit card with an online bill payment option. And unlike the more popular flexible savings accounts, you need not spend all the money by the end of the year.
The money in your HSA can grow tax-deferred for later use, and there’s no deadline for making withdrawals. Some retired folks even use their HSA money (tax-free) to reimburse themselves for the premiums Social Security withholds from their Medicare Part B or to pay Part D or to pay their Medicare Advantage premiums or to pay for long-term care insurance costs. But if you use your HSA money for nonmedical expenses, you’ll get taxed to the teeth; if you use HSA funds prior to being 65 for nonmedical costs, the IRS will hang you with a 20 percent penalty.
Most HSA administrators have savings accounts with access. And depending on your balance, many administrators offer certificates of deposit, mutual funds, stocks, master limited partnerships, bonds, exchange-traded funds and closed-end funds. In this manner, the unused portion of your HSA grows tax-free as if it were an individual retirement account. And when you die, your HSA can be transferred tax-free to your spouse so he/she can continue making contributions or use the money for approved expenses. However, if your HSA is left to a beneficiary who is not a spouse, it converts to a regular bank account and loses its tax advantages.
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