Open Season for Health Savings
Buying the right insurance could put thousands of dollars in your pocket.
By Thomas M. Anderson, Associate Editor
From Kiplinger's Personal Finance magazine, October 2006
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Another factor is your peace of mind. If you're the type of person who wants your auto insurance to cover everything that could possibly go wrong with your car, then a high-deductible health-care plan is probably not the best fit for you, says Jeff Munn, a benefits consultant with Hewitt Associates. If you don't mind taking on more risk in exchange for a lower premium, a high-deductible policy may be just the ticket.
HSA versus FSA. Don't confuse an HSA with the more familiar flexible-spending account (FSA), or flex account. Like an HSA, a flex account lets you set aside tax-free dollars you can use to pay for medical expenses that aren't covered by insurance. Unlike an HSA, a flex account isn't tied to a high-deductible policy. Also unlike an HSA, money left over in a flex account can't be carried over -- if you don't use it, you lose it.
Because you can roll over the money in an HSA, you can use the account as another way to save for retirement. HSAs often work well for older, higher-paid employees who don't need to tap their accounts and for workers whose employer contributes to their accounts.
When you use your HSA to save for retirement, pay close attention to your investment options. For the long term, you don't want to be stuck in a savings account paying 2%, so you'll want alternatives more suitable for retirement savings. Mutual funds from seven of the ten largest fund companies are available in HSAs, and Fidelity will get into the HSA business this fall.
Also pay attention to fees. An Atlantic Information Services study of more than 280 firms that offer HSAs found that annual fees ranged from zero to $75; the average was $10. Some providers charge an account-setup fee that can be as high as $300.
On your own. You'll likely find the best health-insurance deal for yourself through your employer's plan. That's especially true if you have health problems, because employers offering health benefits have to cover all employees, regardless of their medical condition.
Don't assume, however, that your spouse and your children will get the most affordable coverage through your employer. Companies often add a surcharge if your spouse and family members have access to health insurance elsewhere -- say, through your spouse's employer. The surcharge can be hundreds of dollars a month. And employers will sometimes give you cash or other incentives to forgo their health benefits entirely.
If your family is healthy and you live in a state with a competitive health-insurance market, you may be able to buy a family policy that costs 25% to 50% less than employer-sponsored coverage, says author Pilzer. Call the insurer that administers your employer's plan and ask for quotes on individual policies. Watch out for any limitations on coverage or exclusions for preexisting conditions. Typically, more restrictions are placed on individual policies than on employer-sponsored coverage. Compare costs at www.ehealthinsurance.com.
And remember that one size does not fit all. When it comes to health insurance, says Pilzer, "no two families and no two employers are alike."