Trying to navigate through the world of health insurance was a rocky road for Lakewood Ranch, Fla. small business owner Sally Reeder.
As owner of Classic World Travel, Reeder became disenchanted with the cost and limitations surrounding traditional insurance plans. The self-employed travel agent began a search for health insurance that didn’t require deep pockets.
“With traditional insurance, I was paying a higher cost for upfront benefits that I didn’t always use and I was constantly frustrated by the rules and restrictions you had to meet,” Reeder said. “When I was sick, I wasn’t able to get an appointment with my primary doctor, so I simply went to a clinic and paid out-of-pocket.”
“I like the fact that I can plan for future medical costs and that I can put money into an account that I can use for any medical expense and is tax deductible.”
Reeder wasn’t the only small business owner in need of a new, better way to plan and pay for healthcare costs.
Financial planner and health agent William Steffen had also been down the same path and was looking for something better for himself and his clients. The Bradenton, Fla. resident and president of Steffen Financial, said, “The business owner is always willing to educate themselves on how to do things a better way.”
And what the two entrepreneurs agreed upon is that they could take control of their health care spending with health savings accounts (HSA).
Reeder and Steffen are not alone. In a recent nationwide Gallup poll, small business owners who set 2007 goals and objectives for their businesses indicated that the cost of insurance (64 percent) and taxes (62 percent) top their concerns.
Finding the right kind of health plan can be a challenge for the self-employed and their families, and for the employees of small businesses as well. According to a study conducted by the Kaiser Family Foundation, 29% of America’s 13.1 million self-employed men and women were uninsured in 2005. Moreover, the number of small businesses providing health coverage to their workers has fallen steadily and is now below 60 percent. No one can afford to be without health care coverage.
Health Savings Accounts became widely available by law on January 1, 2004. Today, more than 3 million Americans are covered by health savings account (HSA) plans and that number is expected to soar to between 25-30 million by 2010, according to figures from the U.S. Treasury Department. At our company, over 40 percent of our customers are now covered by HSA plans.
HSAs have two components: a high deductible health insurance plan and a tax-favored health savings account. Because higher deductible health insurance costs less, the money you save on premiums can be placed into a special tax-advantaged health savings account.
Your health savings earn interest on a tax-deferred basis. You can even choose to invest them in mutual funds and other vehicles. Then, as you need to, you can withdraw the savings to pay towards your deductible or for other qualified medical expenses including dental and vision care – all tax free. That’s your decision, you decide when to spend.
The idea of taking more control over their health care spending is practical as well as emotionally appealing, and the potential cost-savings to consumers over their lifetimes is significant. At our company, for example, customers often save 45-55 percent or more on their health insurance premiums if they choose an HSA plan over a traditional copay plan.
You own your savings account. You make the decisions how and when to spend the money. Your savings roll over year after year, earning interest. Your HSA is portable and goes with you.
Importantly, as long as you use your account for qualified medical expenses now or in retirement, your savings are never taxed. After age 65, if you do find that you need your savings for other retirement living, you only pay ordinary income tax on withdrawals.
Recent changes in HSA law enacted as part of the Tax Relief and Health Care Act of 2006 provide new opportunities to build up tax-advantaged savings for current and future health care spending,.
Under the new law, HSA holders can choose to save up to $2,850 for an individual and $5,650 for a family in 2007 ($3,650 for individuals and $6,450 for families if you’re 55 or older). Remember these contributions are 100% tax-deductible from gross income.
The new law also allows a one-time transfer from an individual retirement account (IRA) or flexible spending account (FSA) to an HSA as long as it does not exceed the annual contribution limit.
Moreover, for individuals and families who open their HSA in a month other than January, the new law permits to contributing the maximum amount.
As HSAs continue to grow in popularity, there is a strong likelihood of additional incentives and enhancements. •
Michael L. Corne is Vice President of Health Products for Golden Rule Insurance Company, a leader in the individual health market for 60 years. Mr. Corne joined Golden Rule in 1983 and, in his current role, has executive responsibilities for health products and government and regulatory affairs. He also has experience and expertise in claims, financial services, field sales and marketing. Mr. Corne holds a degree in business from Indiana Weslayan University.
Golden Rule, a United Healthcare company since 2003, pioneered the concept of health savings accounts more than a decade ago when it introduced the first medical savings account. Today, more than 40% of Golden Rule customers are covered by HSA plans.