Entrust New Direction Blog

10 Million Americans are enrolled in Health Savings Accounts as of January, 2010, according to a new poll released by America's Health Insurance Plans.  10 million Americans with an HSA represents an increase of 25% in one year, with big increases in large group coverage (33%) and small group coverage (22%).

According to the report, Colorado was among the highest percentage of HSA users by state with 9.2%.

Considering the economy, many small businesses are choosing HSAs to save on healthcare costs for employees and the compnay itself.  Any healthcare change can be difficult, but many employees have discovered their HSAs can be as good as, or better than, their previous health care.

Many of the 10 million have discovered that they can use an HSA to save for future health expenses after they retire. Self-directed HSAs can provide a unique investment opportunity in the healthcare arena. Anyone with a self-directed HSA can invest the funds in real estate, precious metals, or many other investment alternatives. If the HSA holder has investment success, the funds will be tax-free to pay for qualified medical expenses.

HSAs can be used as an investment tool, or just as a savings account and tax break.  Especially with the healthcare overhaul, HSAs will continue to provide many options for Americans in all tax brackets.

Last year we found ourselves in the unfortunate position of emptying our HSA account before the year was done. Luckily we still had not made our 2009 contribution to the HSA, but our personal cash was also running short at the time. We decided to do a one-time rollover from an IRA to the HSA for our 2009 contribution. Anyone can use this tool to fund their HSA in a pinch (or otherwise) once in their lifetime. There's still time to make your contribution for 2009, the deadline is April 15th, 2010. If you've already made your 2009 contribution you can make a 2010 contribution anytime between now and April 15th, 2011.

If your HSA and IRA accounts are both at Entrust New Direction, and you would like to fund your HSA with a one-time rollover from an IRA, download and complete this form and fax or mail it to our office. The funds will be moved from the IRA to the HSA account and the reporting will be handled by our office.

It's always good to be aware of the tax documents you will receive in response to this type of rollover. For more information on these documents and how to understand them, read my follow-up blog post entitled 'Who told the IRS I made a distribution?' for a discussion of the 1099-R and 5498 reporting that happens with a rollover contribution to an IRA or from an IRA to an HSA.

Healthcare costs rise every year for all Americans - employer, employee, self-employed, and their families.  The US government is working on this, but their track record on reform is not so good (or fast).  Meanwhile, Americans pay more and more for basic health care, at a time when many mortgages are going up and many people are unemployed or underemployed.

One solution that has worked for more and more families each year is the Health Savings Account.  10 reasons to consider an HSA:

1) HSA premiums are vastly cheaper than other healthcare plans.

You are immediately saving money.  The renewal costs are also much cheaper than an HMO, PPO or other plans.

2) HSA will cover peripheral medical costs.

With many HMOs or PPOs, dental care, eye glasses, and eye surgery are not covered.  HSAs can be used for this, and also acupuncture, psychiatric treatment,fertility treatment and more.  See IRS Publication 502.

3) You control your medical care with an HSA.  

There is no network. No one will force you to choose from a list of doctors or hospitals.  With an HSA, you play an active role in every healthcare decision. Even the best doctor may benefit from having to explain his or her recommendations when you ask the right questions about your healthcare.

4) HSAs are tax-deductible.

All the money you deposit into your HSA is tax-deferred.  Even if you spend it all on approved medical expenses, the money is still deductible. 

5) Money saved in an HSA never expires.

Unlike a flexible spending account, the money in your HSA can grow for years until you need it.

6) HSAs can be filled from an IRA.

You can pay for your health care from your retirement account - one time.  If you're short on cash, you can take a bit from your retirement and transfer to your HSA without a penalty.

7) With a self-directed HSA, your health care dollars can be an investment. 

Your HSA money can join with your self-directed retirement funds and invest in real estate, gold, private stock, or a loan. 

8) HSA investment earnings are tax-deferred.

If you make a good investment and earn thousands, that money will stay in your HSA until you need it, tax-deferred. 

9) HSA money earns interest when you're not using it.

If you can't find a good investment, or between investments, the money in your HSA earns tax-deferred interest. 

10) Contrary to common sense and popular belief, health care costs are not tax deductible for most Americans.

Healthcare costs must be 7.5% of your income to be tax deductible.  Most Americans do not qualify for this, even in a bad health year.  

For more information on HSA, see our Learning Center or ask a question.

Photo credit Brooks Elliot

Employer healthcare costs are projected to jump 9% in 2010, and employees' costs will likely grow to double digits, according to a report from consulting company PricewaterhouseCoopers.

42% of the 500 employers surveyed reported that they would increase their employees' part of the cost burden.  41% indicated they would increase the cost share through plan re-design.

20% of employers expect to add a high-deductible health care plan as an option in the next two years.  PricewaterhouseCoopers reports that HDHPs are expected to lower health care utilization.   HDHPs also have the added benefit, when combined with a self-directed Health Savings Account, of becoming an investment vehicle.

Those employees who don't have an HDHP are expected to increase their usage of the health care plan, PricewaterhouseCoopers speculates, because many are worried about a potential layoff and want to utilize their health care before that may happen.  Unemployment is adding to the higher cost, as less people are members of commercial health care plans.

Wondering about your options as an employer?  Learn more about Health Savings accounts from the employer's perspective.

Not sure if an HSA is a good idea for you or your family?  Read one person's perspective on HSAs from the employee point of view.

The basics:

Health Savings Account (HSA) is a savings account you can fill tax-free. You can use the account to partner with your self-directed IRA to invest, earning tax-free funds, which you can use to pay for future medical expenses tax-free.

Why I love my HSA:

1) tax shelter (up to $5,000 for family in 2009)

2) can be invested like a self-directed IRA

3) earnings are tax-free

4) never expires (can reimburse you for medical expenses from the moment you open the account until the day you expire).

5) can be filled with a one-time IRA rollover

An HSA can only be used with a High-Deductible Health Care Plan (HDHP), which is also referred to as a catastrophic plan. To me, that's what health insurance is for - catastrophes. Of course, like car or life insurance, the higher deductible, the lower the premium. This can be a good thing, depending on your situation.

The anecdotal evidence:

When I was covered by a standard health insurance plan by my old employer, I paid my $300 every month and my family's $20 doctor visit copays and my family's $20 prescriptions. We went to the doctor with almost every cough and rash and throat ache; we filled and took the prescriptions.

Then, I changed jobs and began the HSA/HDHP plan. At first, I was very unhappy about the change. I thought about how much the doctor costs, how much our numerous monthly prescriptions cost, and I was not happy.

But as the first year as a so-called "under-insured family" progressed, we began to notice a change. We went to the doctor less. We discovered in a couple cases that our medical problems could be solved by nutrition and habit changes. We started to feel better than we had before. We still visited the doctor when we wanted to, we still had monthly prescriptions, but less in both cases.

Slowly, as we examined the bills, we noticed another change. We were actually paying less for health care than with the standard health insurance! Plus, the money in our HSA, combined with our self-directed IRA, was growing steadily, which helps my worried mind.

You probably don't get a health care tax deduction

One more reason to consider an HSA-  you cannot deduct health
costs from your income unless 

    1) health care is 7.5% of total income and

    2) you itemize all your health care expenses

HSA works for us, it may work for you.  For more information, read What is an HSA?