Reason 1: Lower premiums with investment opportunities
Qualified high-deductible health savings accounts come with lower monthly premiums, primarily because you, the insured, are willing to take on a little more responsibility for your ordinary low dollar health costs (such as doctors visits for the flu or a sore throat). Because many young and healthy people do not meet their annual deductible in a year's time, this is an excellent reason to consider a HSA. Why pay extra premium for benefits you're not even getting to use? By accepting a slightly higher deductible, you're able to lower your monthly premium and put the extra money you would be spending on premiums into a tax-favored savings account. The money you put into your account adds up over time, has a favorable interest rate (some HSA administrators allow you to tie your HSA earnings to mutual funds or other strong interest-growing investment methods), and the interest is not taxable by the federal government (or most state governments) when you use the money in your account to pay for qualified medical expenses (those doctor visits you would pay for anyway until you reach your deductible, for example).

Please see the disclaimer at the bottom of this page in regard to tax, investment and legal advice.

Reason 2: Your money grows over time; you don't "lose it" each year.
The money in your HSA is yours, period. Unlike a flex account, there is no "use it or lose it" rule. The money left over in your account at the end of the year rolls over to the next year, every year you have your account. In time, this accumulated savings, combined with the interest earnings the account grows each year, can grow to be a very significant pool of cash from which you can pay medical expenses when you are older. More or less, it's a way of becoming self-insured so when you are older and more likely to need expensive medical treatment, you will have the money on hand to pay for out-of-pocket expenses -- things your medical coverage doesn't cover -- and you will not have to mortgage the house or drain your personal savings or investments to do it. Just for example, if after each year's deposits and withdrawals you effectively are able to have added just $600 in your savings account, this $600 dollars, saved each year in 20 years time at an estimated annual interest rate of 4.0%*, will give you more than $18,500 of tax-favored money in your account -- well more than what you would need to cover your out-of-pocket expenses. And also, according to tax laws today, there is no federal or state income tax on those earnings so long as the funds in your HSA are used exclusively for qualified medical bills. If you keep the HSA funds until you're age 65, funds can be withdrawn for other expenses.

* This figure is only for illustrative purposes. Interest rates will vary. Please see the disclaimer at the bottom of this page in regard to tax, investment and legal advice.

Reason 3: Reduce group health costs while giving your employees greater financial growth opportunities
Small group employers can contribute to the employee's savings in the HSA, or can allow the employee to contribute through payroll deduction to their HSA. By carrying a higher deductible, the employer can save as much as 50% on insurance premiums (vs. a traditional co-pay plan) and can reduce employer payroll and FICA taxes when contributions to the employees' HSA accounts are made through a cafeteria plan (before taxes). This also allows the employee to reduce state, federal and FICA taxes. These are, of course, merely examples; each employer and employee situation will vary. The contributions both an employer and an employee make to the HSA are tax deductible, no matter if the eligible individual elects to itemize deductions. HSA contributions cannot, though, be deducted as medical expenses. So how can an employer afford to pay both the premium and make HSA contributions? With high deductible plans the premiums are often much lower than with low deductible co-pay plans, thus leaving funds from the health insurance budget available to make contributions and maybe even save some money along the way.

Is there a downside to an HSA?
Some people might consider taking more responsibility for their health costs a downside, but in realty the practice is good for everyone in the long run. People who pay for more of their own health costs (doctor's office visits, prescriptions, etc.) are more likely to use the health care system more judiciously, thus saving them or their employer money. People who carry more of their health care cost burden save money on insurance premiums, and in a year where they do not go to the doctor enough to meet an ordinarily low deductible anyway ($500 or $1,000, for example) the money they save on premiums can make up the difference between what they would have paid for coverage and what they did pay for treatment. Best of all, though, is the long-term savings and tax advantages offered by the Health Savings Account. While an HSA policy holder may carry more of their health care cost burden, they are ultimately in a position to be better off, with money set aside specifically to take care of medical needs as they arise.

Interested in more information?
Contact Jason Collum today to see if a Health Savings Account is right for you or your company health plan. Call 662-231-8048.

Jason Collum and Associates LLC is not engaged in rendering tax, investment or legal advice. Federal and State tax regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional. For the names of such professionals in North Mississippi, call Collum and Associates at (662) 231-8048 for referrals.