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Benefit From an HSA
by Kimberly Lankford

I'm retiring early (age 60) and my biggest expense will be medical insurance. How can I reduce this cost?

Consider opening a health savings account until you qualify for medicare. Almost anyone younger than age 65 who buys a qualified health insurance policy with a deductible of at least $1,000 for individuals, $2,000 for families, can open an HSA. An HSA lets you set aside pretax money up to the amount of the deductible (with an annual maximum of $2,600 for singles; $5,150 for families). You can use the money tax-free for medical expenses, and anything left over grows tax-deferred. You can use the money for anything after age 65 without penalty, but you will owe income taxes on any money that isn't used for medical expenses.

In many cases, the cost savings from buying a high-deductible policy make up for the higher out-of-pocket medical expenses you'll have to pay -- not to mention the tax benefits.

An HSA ended up being a great deal for Bill Lomel, who owns a commercial roofing company in Atlanta. After struggling to pay $750 per month for health insurance for himself and his three children, Lomel searched for a better deal on eHealthInsurance.com. He found an HSA-eligible policy from Golden Rule for just $250 per month. The deductible is a hefty $5,000 per year, but he's saving $6,000 per year in premiums and investing almost that much into a health savings account, which he'll use to pay the extra out-of-pocket expenses.

"Basically it's paid back in less than a year," he says. "If I don't use it, I can roll it into retirement dollars. I never lose."

Even though the deductible is higher, Lomel would rather save the money on premiums and have more control over his medical expenses. "We have no major health problems, and I don't think it's important to pay a ton of money for insurance to cover doctors' visits. We have insurance for the big things," he says. "Why spend the $6,000 if you don't have to? Before, you automatically paid for it in the premium." Now, he can save any money tax-deferred that he doesn't use on medical expenses.

Check out the HSA Insider Web site for a list of insurers offering HSA-eligible policies and financial institutions providing the investment accounts. You'll also find price quotes for several insurers at eHealthInsurance.com.

For more information about how HSAs work, see Health Savings Account Answers.