HSAs in the Mainstream
Health-savings accounts more popular; are they for you?
By Jennifer Openshaw - MarketWatch.com

Seldom do the words "health" and "savings" appear in the same sentence. Yet, to counter rising costs and bring more economic responsibility to the health-care system, Congress and the Bush Administration have emphasized health-savings accounts since early 2004. Now it's easier for individuals and business owners to jump on the HSA bandwagon.

More and more are doing just that. In fact, according to a study by America's Health Insurance Plans, an industry association, the number of HSAs has tripled in the last 12 months to more than 3 million.
Why? Because many people are discovering the "win-win" proposition offered by HSAs, especially for healthy citizens. More than that, rising popularity is turning HSAs into a mainstream consumer financial product.

HSA benefits

Let's review the features and benefits:

Individuals must get a so-called "high deductible health plan", or "HDHP", which is HSA compatible health insurance offered by a range of insurers. Minimum individual annual deductibles must be $1,050 or higher; $2,100 for families. Monthly HDHP premiums are hundreds of dollars lower for the average individual or family.

Much like an IRA, the HSA is a tax-deferred savings account. Funds can be deposited up to the amount of the policy deductible and deducted from taxable income -- instead of being lost forever to premiums. HSA funds can be used for any qualified medical expense and can be withdrawn after age 591/2 for any purpose without penalty.

HSA advantages include:

• Unreimbursed health-care costs, including deductibles and co-pays, are paid with before-tax dollars.
  
• There is more flexibility -- a wide range of health-care expenses, including eye and dental care and over-the-counter medications are covered.
• You don't face a "use it or lose it" penalty each year as with employer-sponsored flexible spending.
  
• You can save up to $1,800 in federal income taxes annually plus state taxes in most states
  
• You can invest HSA funds in growing range of choices and growth compounds tax-free.
  
• Healthy individuals can accumulate savings in order to pay health-care expenses later in life or to supplement retirement savings.
  
• Employers can buy HDHP coverage and fund or partially fund HSAs for employees -- instead of paying high premiums or offering no coverage at all.

According to Fred Adams of HSA for America, a national HDHP reseller and HSA adviser, HSAs "without a doubt make sense if you're willing to sit down and figure out how much you're spending on premiums and out-of-pocket costs, and how much tax savings you'd realize."

But what I really like now is that it's so much easier to get started. Response to HSA popularity is making more plans available, and wider availability is making them more popular.

Just a few years ago, there were only a handful of HSA (or medical-savings accounts as they were known before 2004) plan administrators. You'd be lucky to find one locally and barriers were high. There weren't many HDHP providers. Startup, annual and monthly maintenance fees might set you back $100 in the first year. Investment choices were limited. Reimbursements were manual and cumbersome. There was nobody around to help.

Now large banks like Wells Fargo and US Bank offer HSAs, along with several smaller banks and credit unions. The list of HDHP insurance providers has grown, and some like Blue Shield have recently announced plans to offer HSAs.

Still evolving

While coming on strong, HSAs still haven't fully arrived as a consumer product. I shopped HSAs recently at one major bank. Most branches didn't know about their HSA program. It was administered by a centralized trust department. By their own admission they "hadn't gotten around" to training branches yet.

The HSA group was very "consumer friendly" once contacted, and setting up the plan was as easy as setting up a checking account or an IRA. But I couldn't get an interview because no one on staff was trained or qualified to talk to the press! Unusual for a modern consumer enterprise.

Still unsure? As with most popular products, there is a growing abundance of information on the Web. Specialized portals explain HSA features and identifying today's plan providers:

• HSA for America
  
• HSA Insider
  
• Health Decisions

Bottom line: HSAs won't work for everyone, but if they work for you, there's no reason to wait any longer.

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