Problem:
I’m a self-employed medical transcriptionist. I have had conventional health insurance but it has gotten so expensive, and many of my health care providers have stopped taking insurance (they will help me submit my bills, but they no longer are “in-the-network”). It’s getting so that I can’t afford to go to the doctor even though I have insurance, because I don’t always have that much cash available for the initial visit. I’m paying “through the nose” for medical insurance, and I can’t afford to use it! Is there another option?
Solution:
For many people who are in this or a similar situation, an “H.S.A. qualified health plan” might just be the solution they’re looking for…and the benefits of this type plan are actually more than just the obvious ones.
What is an H.S.A.?
H.S.A. stands for “Health Savings Account.” It is provided for under provisions of the IRS code to allow a person to have a IRA type savings account that is used for medical expenses. Money deposited according to the rules becomes tax-deductible in the year money is put in – but is not deemed taxable-income when used. It is like earning tax-free money! It may only be used for health related expenses, with few exceptions.
To open an H.S.A. account at a financial institution, you must have a health insurance plan that is “H.S.A qualified”. These health insurance plans have high deductibles (but some pay 100% after “deductible”).
These plans work very well when utilized properly. The key here is to fund the H.S.A.
It is most desirable to regularly put money into your H.S.A. according to the allowed schedule, but even when a person does not do this, as long as they put money in this account before using it to cover a medical expense, they will benefit. (At the very least they will save the amount of tax they would have paid on that amount of income.)
So, for our self-employed medical transcriptionist friend – by setting aside a certain amount of his/her monthly income to fund an H.S.A. while paying LESS for the higher deductible health insurance plan – they have the cash needed for their doctor visits, an income tax break (because of having less “income” to declare at the end of the year), and if they stay healthy and don’t need to use their H.S.A. extensively – they’re saving for retirement!
If they should end up with a major medical event, providing their H.S.A. is funded to the amount of their deductible, their medical expenses are covered by combining this savings account with their health insurance plan.
Q&A
Q. Do I have to be healthy to qualify for one of these plans?
A. Well, yes and no. The actual H.S.A. account does not care if you are healthy or not. But a person would have to pass medical underwriting to get the H.S.A. qualified insurance plan. Different companies have different underwriting requirements. I can help you know what your choices are based on your health history.
Q. What if I smoke?
A. It will likely cost you more for the health insurance. (Didn’t your mother tell you smoking is a health risk?) Seriously, smoking does increase medical costs – as a rule – and will impact the cost of health insurance. The good news is, if you quit and provide evidence of this, you will likely be able to qualify for a lower rate (time limits apply).
Q. I don’t go to the doctor. How is this going benefit me?
A. Do you go to the dentist? How about the eye doctor? Or the Chiropractor? Although the medical plan may or may not cover these things, your H.S.A account may be used to cover these legitimate medical expenses. So, the money you spend on these things becomes tax deductible, and you have the money when you need it. Of course, one never knows when a major medical event may occur, even when one has been extremely healthy and “does not go to the doctor”.
Q. Who benefits the most from this type of plan?
A. Most people will benefit. Some benefit more than others because of the tax benefits, but, as I’ve stated, almost everyone benefits – even someone nearing retirement.
Q. Does it have to have such a large deductible?
A. No. There are many choices. But keep in mind, H.S.A. accounts benefit you for more than just health costs. They are a tax-exempt savings account that you hold in readiness for healthcare costs. And, by having this H.S.A. you are now able to buy a less expensive health insurance plan – the higher the deductible on the insurance, the less you will pay for it.
Q. Are there any other benefits?
A. Yes! Remember when I said you had to use the money that you deposited into the account for health related expenses? Well keep in mind that what is “health related” has nothing to do with what your insurance plan will pay for.
- Your H.S.A. money can be used to pay other expenses that are health-related. Dental, Vision … many things.
- Your H.S.A. money can also earn tax-free interest when you don’t use it.
- And, when you reach retirement age: Your H.S.A. money can be rolled into an IRA and used for retirement income!
This is just a general explanation of the benefits of an H.S.A. and H.S.A. qualified health plans. I would be happy to answer further questions, as well as explain how it can fit your individual situation, both from a tax viewpoint and as well as choices in specific health insurance plans that will best serve you.
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