Health Savings Accounts offer DCs tax advantages, insurance savings

For the most part, the U.S. federal government has failed to win much praise for its health care initiatives. No matter what law it passes or program it reforms, critics usually find little reason to applaud the action.

The recent introduction of Health Savings Accounts (HSAs) has been a major exception to that rule. HSAs have been lauded by economists and consumer advocates as a plan that will help millions of Americans reduce their health care costs.

On December 8, 2003, after four years of development, President Bush signed into law the "next generation" of Medical Savings Account (MSA) plans, called the Health Savings Account. The HSA legislation was part of the Medicare Prescription Drug law, and possibly one of the few that will prove to be a true benefit for American health care consumers.

HSAs are particularly important to doctors of chiropractic who are self‑employed, since it gives them a way to save on their health insurance and on their taxes.

The plan allows you to reduce your insurance premiums by purchasing a qualified health insurance policy with a high deductible, while investing additional money in a tax-advantaged HSA. The money put into an HSA is completely tax deductible (like money used to fund a traditional IRA). The HSA can be invested in stocks, mutual funds, interest‑bearing accounts, etc., and grows tax free.

"Since 80% of all insureds never spend enough to cover their deductibles, the money spent on low‑deductible insurance is lost."

According to John C. Goodman, president of the National Center for Policy Analysis, the idea behind HSAs is simple.

"Individuals should be able to manage some of their own health care dollars through accounts they own and control," he states. "They should be able to use these funds to pay expenses not paid by third‑party insurance, including the cost of out‑of‑network doctors and diagnostic tests. They should be able to profit from being wise consumers of medical care by having account balances grow tax free and eventually be available for nonmedical purchases."

Since 80% of all insureds never spend enough to cover their deductibles, the money spent on low‑deductible insurance is lost. With HSAs, instead of giving the money to the insurance company, you put it into an HSA account that reduces your taxable income, grows tax free, and is available to you whenever you need it for routine medical expenses (under the amount of the deductible).

There is no minimum amount for contributions although, like IRAs, there is an upper limit. Annual HSA deposits cannot exceed the amount of the health insurance deductible with a maximum of $2,600 for individuals and $5,150 for families. To encourage saving for health expenses after retirement, HSA owners between ages 55 and 65 are allowed to make additional catch‑up contributions ($500 in 2004) to their HSAs.

Best of all, amounts contributed to an HSA belong to individuals and are completely portable.

According to the U.S. Department of the Treasury, the money not spent stays in the account and gains interest tax free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year).

Individuals and family members can make tax deductible contributions to the HSA even if they don't itemize deductions on their federal tax returns. Individuals with existing MSAs can either retain them or roll the amounts over into a new HSA.

Of particular interest to DCs is the fact that HSA money can be spent for non‑medical health care expenses not covered by their health insurance policy, such as chiropractic, dental, orthodontics, laser eye surgery, contact lenses, prescription and non‑prescription medicines, etc. You can even pay for long‑term care premiums out of your HSA.

There are so many advantages ‑‑ for individuals and for the American health care system ‑‑ that even the CATO Institute, a Washington think‑tank often critical of government programs, gave it a strong thumbs up, writing: "HSAs also offer security against the insolvency of the Medicare program by providing account holders with savings protection in case Medicare goes bankrupt."

Other observers also found plenty to support in the law.

An article by Thomas A. Fogarty for USA TODAY called HSAs a "potentially lucrative tax shelter." He noted: "The accounts have the potential to accumulate huge balances over years of contributions and investment gains. In theory, that puts consumers in a better position to pay for their own health care as they grow old, when costs typically peak."

Terry Savage, columnist for the Chicago Sun‑Times commented: "Aside from making health insurance more affordable, there's a great social benefit to HSAs since they encourage everyone to be more watchful about unnecessary medical tests and expenses. If you don't spend the money in your HSA account, you keep it!"

News of the HSA program was well‑received by the public as well.

"We've been very pleased with the market response," said Scott Krinke, vice president of Assurant Health, formerly Fortis Health, a national seller of medical savings account and HSA products. In January, the company received 2,500 applications from new customers wanting to set up health savings accounts, he said. That number has steadily increased, reaching more than 4,000 in March.

Chiropractic Benefit Services (CBS) is working with Assurant Health, as well as other providers, to assist DCs in setting up HSAs and finding qualifying high‑deductible health insurance policies.

The insurance plan that will be most suitable for most chiropractors is Assurant's One Deductible plan. This plan sets a single deductible for the entire family. Once the deductible has been met, the insurance pays 100% of all qualified medical expenses within the network, with a lifetime maximum of $8‑million per person.

Assurant Health also offers a "healthy discount" that reduces premiums (for up to three years) if the deductible was not met in the previous year. You reap two major benefits from this discount: you pay substantially lower premiums, and you can contribute more to your HSA.

To learn more about HSAs or to get help in setting one up for you or your family, contact CBS at 800-883-0412 or by e-mail at tfeuling@san.rr.com.