About a decade ago Health Savings Account were created so that individuals and families that were covered by a high deductible health plan could receive a tax-preferred treatment of money saved for medical (and other) expenses. The idea behind this is that depending on your personal situation, you could opt to purchase a low deductible health plan or have an additional incentive to look at a high deductible health plan that offer the opportunity to bank dollars pre-tax that could grow tax-deferred and ultimately be used tax-free for medical expenses. One of the keys to this program is that Flexible Spending Accounts (FSA) were typically use or lose accounts year to year whereas the Health Savings Accounts (HSA) allowed you to carry balances into future years until you actually use the money.
As of 2012, roughly 24% of all participants were involved in a high-deductible plan within small businesses and 17% for larger corporations (source: Wikipedia.com). You may be one of the more than 22 million people enrolled in a Health Savings Account. Or you may work for the half of small business owners who now offer a high deductible health plan to give employees more choice. It’s not 100% clear at this point because the new healthcare law hasn’t outright ruled out HSA eligible plans, but given the way they have mandated overall deductibles, it swipes away HSA choices and future regulatory adjustments could make these plans vanish as part of the magical health care act.
What’s most interesting to me about the changes about to hit the market place is that healthcare is supposed to be all about choice. No matter how you do the math, generally most of us have the cost of medical insurance, the cost of co-pays/prescriptions, and then year to year we have to pay out of pocket for whatever unforeseen larger medical expenses hit our families. High deductible health plans attached to a health savings account gave the public a real option to be able to manage cost against risk. Pay a lower premium for a higher deductible plan and then choose to bank dollars pre-tax for those unexpected larger medical expenses. If we managed our overall health better, we had the option to sock away quite a bit of additional money for the future.
The new law that goes into effect right down the road diminishes the allowed deductible for small-group plans (those with fewer than 100 employees) to $2,000 for singles and $4,000 for families, beginning in 2014. This is roughly 33% of the level allowed under current HSA law. So the big question is how do you establish a Health Savings Account if there isn’t an option for a high-deductible plan? What will happen with your existing Health Savings Account money? We know that most recently that the Government took away our ability to use HSA funds to purchase over the counter drugs which was a painful line item to remove from use of HSA funds. In additional, penalties increased to 20% if you use your HSA for non-medical purposes.
The Secretary of Health and Human Services is authorized to review health plans each and every year. They could easily change the law or put in a series of hurdles that would discourage small businesses from using these plans. The bottom line is that the direction of HSA accounts in general is really at the hands of our Government at this point.
Will the HSA accounts be completely done once the good old bronze, silver, gold, and platinum plans go in place when the new health insurance mandate goes into effect in the next three to six months? It seems like they have been a really great program for the consumer and we really like them, so take two guesses on how this story will turn out? Maybe it’s time you start reading a little bit more about what is going to hit your family budget so you can make smart money health insurance moves for the future.
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Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS® Co-CEO and Founder oXYGen Financial, Inc. Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS.