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Health Savings Account - One Family's Experience

Architect Robert Payne signed up for a Medical Savings Account -- the predecessor to the HSA -- as soon as Congress made them available in 1997. He bought a high-deductible insurance policy that required him to pay the first $3,500 of medical expenses for himself and his wife each year, and put that much tax-deductible money into an investment account offered by Health Savings Administrators.

Payne figured he and his wife were in good health and unlikely to need much medical care. The high-deductible policy helped him lower his insurance premiums while preserving their coverage in case he or his wife suffered a catastrophic illness or injury.

“It’s a safety net for the ‘big one,’” Payne said. “That’s what I wanted protection for.”

Congress’ creation of the HSA to replace the MSA, in Payne’s opinion, just made a good situation better.  In 2007 contributors can now put aside up to $5,650 a year, an amount that will rise with inflation.

In addition to avoiding income taxes, the contributions are now free of Social Security and Medicare taxes as well.

People like Payne who are over 55 (he is 61) can contribute an extra $800 a year, an amount that is scheduled to rise to $1,000 by 2009.  Congress also vastly expanded who can qualify. While MSAs were limited to the self-employed and small businesses with less than 50 employees, anybody who buys a compatible high-deductible policy can now open an HSA. 

Even after surgery, a $30,000 balance
Most years, the Paynes haven’t had to take much out of their account, which is invested in low-cost Fidelity mutual funds. Even after back surgery last year, Payne still has a $30,000 balance.

“When you’re self-employed, it really couldn’t be any better,” Payne said. “You can put away money, and it keeps compounding.”

In fact, many account holders are so attracted by the idea of how much their tax-advantaged money can grow that they actually pay for medical expenses with other, after-tax dollars rather than tap their accounts.

“Sixty-eight percent of our account holders never touch the money,” said John Vellines, President of an HSA administrative firm. “The type of people attracted to this are looking to the future, knowing they can use it for retirement and have full flexibility in how they use the money.”

Theoretically, a couple that contributed the current maximum each year and never tapped the cash could have a nest egg of nearly $600,000 in 30 years, assuming their investments grew at an average 8% annual rate.

How to Find the Best HSA Qualified Health Plan
No one insurance company is the best in all situations.  Things like age, zip code, tobacco use and health history will influence which plan will be best for your specific needs.  

We will review HSA qualified plans from Colorado's top companies including Anthem Blue Cross Blue Shield, Humana, Assurant Health, American Medical Security and Golden Rule / United Healthcare and more to help you find the best value on the right health plan.   Get a free personalized quote on an HSA qualified health plan. 

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* See IRS Publication 502 for a list of qualifying medical expenses. You may also reference the IRS HSA Questions and Answers bulletin and www.irs.gov for more information on HSA's and IRS rulings and www.ustreas.gov for Treasury Department rulings.  Colorado Health Insurance Brokers are not engaged in rendering tax, investment or legal advice. Federal and state regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional.   All terms and conditions of insurance coverage, including benefits and exclusions, are contained in the Certificate, which shall control in the event of a conflict with this overview.

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