| Q: My company recently began offering a Health | | | | for those seeking tax breaks. If the savings are |
| Savings Account (HSA) available to all the | | | | used for qualified medical expenses, the entire |
| employees. Why are employers throughout New | | | | amount can be withdrawn free of taxes. Yes - |
| Jersey rolling out these plans? What are the pros | | | | that is right, free of taxes. If the savings are |
| and cons of a HSA? | | | | used for other purposes, the withdrawal is taxed |
| The Problem - Healthcare Costs. If you think rising | | | | as income and accessed a 10% penalty (if under |
| healthcare costs are only the insurance company's | | | | the age of 65). At age 65, when Medicare begins, |
| problem or your employer's problem, think again. | | | | withdrawals are only taxed as income at your |
| Most employees pay 10%-90% of their | | | | then tax rate. All interest, gains and dividends in a |
| healthcare costs, when all costs are included. All it | | | | HSA are sheltered from taxation - allowing all |
| takes is a quick review of your pay stub over | | | | earnings to compound on a tax-advantaged basis. |
| the last few years to see that the insurance | | | | Unused balances can be rolled over from year to |
| companies are passing on increasing healthcare | | | | year. Many employees view the HSA as a |
| costs to employers and employers are passing on | | | | retirement plan - providing them a |
| these costs to employees. Healthcare costs have | | | | tax-advantaged way to save for retirement |
| risen 8%-10% each year over the last three | | | | above and beyond their 401(k) and their Individual |
| years and are likely to grow two to three times | | | | Retirement Account (IRA). |
| the rate of inflation for the foreseeable future. | | | | A Win for Employees, Employers and Insurers. |
| Compounding the Problem - New Jersey | | | | Because the HSA is based on a high deductible |
| Insurance Laws. Almost every state in the U.S. | | | | insurance plan the employee takes on a higher |
| can deny individuals coverage through the | | | | level of responsibility and risk for medical |
| underwriting process. New Jersey is one of only | | | | expenses than a traditional insurance policy. |
| five states in the U.S. that provides for | | | | Employees who run their family to the doctor |
| "guaranteed issue" - which guarantees health | | | | office every time someone has the sniffles |
| coverage, regardless of health status, age, claims | | | | (because the visit only costs them $10, while the |
| history, or any other risk factor. Although this | | | | insurance company pays the remaining $65 under |
| may be considered a blessing, it is an expensive | | | | a traditional plan) will think twice when they pay |
| blessing. Almost by definition, this increases the | | | | the full $75 out of their own pocket under a HSA. |
| cost of insurance coverage for everyone in the | | | | That said, those out of pocket costs are all with |
| state to account for those who use the benefits | | | | pre-tax dollars that were contributed to the HSA. |
| most. | | | | By utilizing a HSA employers can reduce their |
| The Solution - Health Savings Account. Just a | | | | premium costs by as much as 50%, passing |
| quick background on Health Savings Account | | | | most or all of those savings directly to the |
| (HSA) and how it works. Established as part of | | | | employees. Many employers, particularly in |
| the Medicare Prescription Drug, Improvement, and | | | | "guarantee issue" states like New Jersey, are |
| Modernization Act of 2003, the HSA is a hybrid | | | | implementing a HAS based on these benefits. |
| between health insurance and a retirement plan. | | | | Action Steps - Implement a Health Savings |
| The HSA was established so savings used for | | | | Account. Implement a HSA for your company or |
| qualified medical expenses for yourself, or anyone | | | | ask your employer to implement one. With health |
| you claim as a spouse or dependent would be | | | | care costs increasing faster than wage increases, |
| free from taxes. Qualified medical expenses | | | | employees are bearing more and more of the |
| include: medical doctors, dental and optical care, | | | | cost burden. A HSA provides a pre-tax means to |
| chiropractic care, long-term care, and Medicare | | | | contribute towards an account that will grow over |
| Part A or Part B and Medicare HMO insurance | | | | time, with the option to use the money for |
| premiums. Unqualified medical expenses include: | | | | medical expenses on a tax-free basis or for any |
| cosmetic surgery, health club dues, nonprescription | | | | purpose in retirement on a penalty free basis. |
| drugs and medicines and funeral expenses. | | | | Implementing a HSA saves money for all those |
| A contribution to a HSA is only permitted if the | | | | involved and forces employees to be more |
| health insurance accompanying it has a deductible | | | | responsible with their own savings. |
| (your out of pocket expense) of at least $1,100 | | | | While the healthcare problem is not going away |
| for individual coverage or $2,200 for family | | | | soon, the HSA provides one powerful tool to |
| coverage. The current contribution limit per year | | | | combat the problem. When it comes to important |
| is $2,850 for individual coverage or $5,650 for | | | | employee benefits, speak with a licensed financial |
| family coverage. Those 55 and older can | | | | professional before making irreversible decisions |
| contribute an additional $800 in 2007. | | | | that may haunt you for years to come. |
| Contributions are all pre-tax, a tremendous benefit | | | | |