Costs of health care are rising, lets face it if you watch the markets you see health care companies like HUM and AET posting good profits for many years means someone is paying them more and more each year and that cost is now making it to us in a new way.


HSAs are still a bit new, and on the surface they can be a bit rough as you need to spend a much higher then we are use to up front costs. For example my wife and I pay 100% of our health care costs up to the first $3,000. After that our insurance company pays 100% of the costs for most procedures, there are always exceptions of course. However the process works pretty well. To start there is a maximum allowed by law that you can contribute yearly. For 2008 that maximum is 2900 for an individual and $5800 for a family. We have the max that we can have withdrawn from our pay check taken out each month. The amount is before taxes, so it is like the FSA or as I like to compare it to a 401K for your health care expense. Since this money can be used for any health care expense, we are not limited to just doctor visits, similar to the FSA plan we can use the money on any health related expense. You can fund your account with a one time transfer from your IRA that transfer is not to exceed the total amount of that years allowed contribution.

The HSA is similar to the FSA in that it is tax free money used to pay for your health care expense, but with the HSA account you can carry the balance into the next year, create your account with a company of your choice and even have a brokerage HSA account. I would say that the biggest benefit to the HSA account is that you can invest the amount you put into it and your returns are TAX FREE. We are all going to get old and we are all going to need to go to the hospital for treatment when we are older, so similar to a 401K this money can be saved tax free, but unlike the 401K this money is not tax deferred, it is never taxed. The only stipulation is that you HAVE to use it for a medical expense. So save your receipts, you might need them for proof one day.

The process of the doctor visits works out well. When we go to see a doctor they have to process our claim through our health care provider, so there is no out of pocket expense at the time of the visit. Then after the claim is processed we get a bill that shows how much they wanted to charge and then how much our insurance will let them charge, which in many cases it quite a significant difference. Then if the bill is high enough, you can usually call the doctors office and ask them to take payments which is like free financing for a short period of time. For my payments I use my HSA account which is tax free money.

You have to have a high deductible high premium health insurance plan to open an HSA account. If you loose your job that offered you an HDHP account you keep your HSA account and in fact you can even pay your COBRA payments with your HSA account until you find a new job. If the next job offers an HDHP you can contribute to your HSA account again. However if you go with a traditional health care insurance plan you will no longer be eligible for contributions, but you don’t loose the account. If you find that you need the money in your HSA account for expenses unrelated to health care you can withdraw it, however the IRS will impose a 10% withdrawal penalty before the age of 65. After the age of 65 you can withdraw your funds at any time for any reason however they will be subject to ordinary income tax. However, if you continue to withdraw your funds for qualified medical expenses you can withdraw the money tax free.

So as a 30 something, I am planning on aggressively trading this money similar to a 401K and will hopefully not have to worry about health care in my golden years. Now if they can just come up with a Gas savings account and a food savings account we might be able to handle some of these other current day cost spikes.