MAGAZINE   November Magazine Contents Web Links Past Issues Try a Free Issue Customer Service Feedback GETTING STARTED Life Insurance Made Simple Smart Shopper's Guide to Auto Insurance Fill the Holes in Your Homeowners Insurance Buying Your Own Health Insurance Health Savings Account Answers Why You Need Long-Term Care Insurance MORE... INSURANCE TOOLS How much should I put in my flexible spending account? Estimate your medicare prescription drug savings How much life insurance do I need? How can I reduce mortgage insurance costs? HSA Q&A   Still have questions about HSAs? Share them in the Kiplinger.com Community.

INSURANCE
A New Way to Save on Premiums
(Page 3 of 4)
by Mary Beth Franklin & Kimberly Lankford

Savvy consumers

Other small businesses see HSAs as a way not only to save money on health insurance, but also to turn their employees into discriminating health-care consumers. Choosing health-care services wisely saves the consumer money and reduces the company's overall utilization of health insurance, which could minimize future rate hikes.

First National Bank of Orwell, in Vermont, offers employees a family health-insurance plan with a $4,500 deductible. The bank uses the money it saves on premiums to contribute $3,250 to each employee's HSA. Theoretically, the employee's maximum out-of-pocket expense would be $1,250 -- the gap between the HSA and the deductible -- before the insurance takes over. That may sound like a lot, but it's really not when compared with a traditional health-insurance plan that has a $500 deductible and a 20% co-pay. With such a plan, an employee who racks up $4,500 in health-care costs would be responsible for $1,300 including the first $500 and 20% of the remaining $4,000.

"What I like about HSAs is that they force consumers to be invested in their health care," says First National Bank president Mark Young. He notes that when an employee's son injured his ankle, the doctor diagnosed a sprain and prescribed a boot and crutches, which his office could supply for a fee. The employee decided to buy the boot at a discount drugstore and borrow crutches from a neighbor. "Therein lies the benefit of an HSA," says Young. "If consumers don't spend the money, they can carry it forward to the next year."

Some critics worry that employees might skip needed medical care in order to save money. So when the state of Arkansas rolled out its new health-care options this fall for state employees and teachers, it included a free wellness benefit that covers one annual checkup with its high-deductible health-insurance policy and HSA. Arkansas is not contributing to employees' HSAs, but the state requires all participants to contribute at least $20 a month to pay out-of-pocket medical expenses.

Prime candidates

So, if given the option, should you jump on the HSA bandwagon? It depends on your health, your cash flow and how much your employer is kicking in. "It really is going to demand a careful cost-benefit analysis," says Victoria Craig Bunce, director of research and policy for the Council for Affordable Health Insurance.

Look through your previous year's medical expenses and estimate how much money you spent on premiums, co-payments and deductibles. Then compare it to the lower-premium cost of a high-deductible health plan and tax savings from an HSA.

A calculator at eHealthInsurance.com lets you estimate your annual tax savings from contributing to an HSA and the potential for long-term savings if you allow some money to accumulate each year. For example, if you leave $2,000 a year in your HSA for 20 years, and assume a modest 4% annual return on your investment, you end up with more than $61,000 in your account.

Young, healthy, single individuals and others with few medical expenses are ideal candidates for HSAs, particularly if their employer contributes to the account, says Paul Devore, chief executive officer of Financial Management Services in Encino, Cal. The money can accumulate on a tax-deferred basis for years until needed.

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