[...] will go away or be lessened (gasoline, clothes, meals out, etc.). Other expenses will increase (self employed health insurance, etc.). Get quotes on things like health insurance and office space rentals now, and factor those [...]

[...] power on at your house, or food on the table for your family. It might help you cover the costs of COBRA insurance, other utilities, and maybe even supplement your severance pay to make it last [...]

HSA stands for Health Savings Account, more commonly referred to as a “Medical IRA”. HSA qualified HDHP’s are one of several relatively new Health Insurance concepts that fall under the heading of “Consumer Driven Health Insurance”. Health Savings Accounts are a unique way to attractively manage your health insurance costs. They were originally named MSA’s or Medical Savings Accounts designed by Senator Bill Archer (R) of Texas. Bill’s project was to find a way to reduce the cost of health insurance for the self employed without sacrificing quality coverage for a major medical illness. Bill’s brilliant idea was to eliminate the parts of a Traditional Health Insurance Plan that cost the consumer the most money. These expensive benefits include outpatient doctor “co pays” and outpatient prescription “co pays”. Bill approached Congress with a proposal that stated in essence that if you remove those two features and keep the major medical coverage in place you could conceivably cut the cost of your health insurance premium considerably. He was absolutely right!

To illustrate how Bill’s idea works in the real world. We will use a real world example. Tony & his wife are currently paying $1,134 a month for Cobra continuation coverage from a previous group plan. In comparison, the monthly premium for an HSA qualified HDHP (High Deductible Health Plan) which covers each insured family member up to $5 million dollars is less than half of the premium that they are paying now ($481.64 monthly to be exact). This is a yearly savings of $7,828.32 or a monthly savings of $652.36. This is a significant difference. However the insured has to give up all of their outpatient co pays. Is this worth it? This was the question posed to Senator Bill Archer (R) when he approached Congress back in the late 1990’s. His answer to Congress was simply “make it worth it”.

In other words, he asked Congress to make it worth it to the insured. Their response was two fold. And it is these two primary reasons that make HSA’s a “no-brainer” for every self employed prospective insured and for their corresponding employees. The first thing Congress did was to state that if a policy holder buys a major medical health insurance policy (HDHP) with a yearly family deductible between $2,200 per family (not per person) or as high as $5,800 per family we will call that an HSA qualified health insurance plan (HDHP).

They further said that in order to make giving up outpatient co pays more attractive to the insured we will allow anyone who has an HSA qualified health insurance plan (HDHP) the option to open a tax favored HSA (Health Savings Account) with their local bank or financial brokerage house. Since the insured is saving a considerable amount of money each month by giving up their out patient co pays, we will allow them to take that extra premium that they would have normally given the insurance company for the “privilege” of a co pay and put it into a 100% tax deductible account that will grow tax deferred at an interest rate adjusted by the Fed.

In addition to depositing the amount you save in insurance premiums, you may also deposit in your HSA an amount equal to what the IRS allows for that given year. For the year 2009 the maximum contribution a family can make to their HSA account is $5,950. In addition, any family member who is 55 years of age or older can deposit an additional $1,000 annually (more on the age 55 allowance below). This means that the total amount that Tony and his wife (in our example above) can deposit per calendar year is $7,950 and they can take a 100% tax deduction for that contribution similar to an IRA.

Furthermore, if they do incur medical expenses that arise throughout the course of the year that are subject to the deductible (i.e. prescriptions, doctor’s office visit charges, etc.) the IRS will allow them to pull out that money that they put into their optional tax deductible, tax deferred HSA savings account to pay for those expenses. When they use their HSA money to pay for those expenses the IRS will allow them to write those expenses off at a 100% tax deduction. The list that the IRS allows them to spend their HSA money on is very liberal and includes things like dental, orthodontics, eyeglasses, radiokeratonomy (Lasik corrective eye surgery), alternative medicines etc. Click the hyperlink to see the list of allowable expenses and disallowed expenses on the HSA section of the IRS web site here: http://www.irs.gov/publications/p502/index.html

Arguably the most attractive tax advantage to owning an HSA is the fact that the money left over in the HSA account that was not used on medical expenses at the end of the year is “rolled over” into the next year and awarded a higher rate of tax deferred interest. The insured also has the option to roll those unused funds into no load mutual funds, thereby building an extra tax deferred retirement account with money they would have normally given to the insurance company each and every year whether or not they had any claims that year!

It should also be noted that with not having a “co pay” with your plan does not mean that your outpatient doctor visits and outpatient prescription drugs will not be a covered expense. With most HSA qualified HDHP’s these charges are a fully covered expense just as they would be with a Traditional Health Insurance Plan. The only difference is these charges will be subject to the “aggregate” family deductible.

Being “subject to deductible” does not mean that you will pay full price for these charges either. If you stay within the vast PPO network that most reputable carriers offer (www.phcs.com) your outpatient doctor office visit charges will be discounted by as much as 40%. Your prescriptions will also be discounted significantly as well by staying within the Rx prescription network.

Let’s break that down in plain english. Let’s say your doctor’s office charges you $100 for a “sick visit”. If you use a PPO provider (typically PHCS or MultiPlan) those office charges will be “re-priced” down to roughly $60. Now compare that to a Traditional plan which provides you with a $25 “co pay”. The difference to you is $35 out of pocket for that doctor’s office visit. But is that all you are really saving?

Not if you add in the monthly premium savings between the two plans. The typical monthly premium savings between a Traditional plan and an HSA qualified plan for a family is $200 to $300 monthly or more. Let’s split the difference at $250 less monthly. This equates to an annual savings of $3,000.

Now let’s take that $3,000 annual savings and deposit it into a tax deferred, tax deductible interest bearing account. Let’s go a step further and imagine you find an HSA account that bears you NO interest AT ALL (which is not that hard to imagine in this economy). You’re still saving $3,000 annually and you’re deducting that amount from your adjusted gross income. This means less reportable income which means less taxes.

Now lets imagine you have no major medical claims in year two and you deposit the same amount. Now in year three you have a worse case scenario occur. Now you have $9,000 to help pay your “aggregate” family deductible. Moreover, since deductibles with HSA qualified HDHP’s include only one “aggregate” deductible for the entire family there will be no other risk to any other family member for the rest of that year. Unlike Traditional Health Insurance Plans which typically require each of three separate family members to pay their own calendar year deductible if they end up in the hospital (or need an MRI, CT, Nuclear Medicine Scan etc.)

The longer you look at HSA qualified HDHP’s the more sense they make. This is why they have caught on like wildfire and will continue to do so. The only inhibitor to the spread of HSA’s is lack of education (as is the case with any other financial vehicle).

Now you can help fund your HSA account by purchasing every day items! Click http://www.myhsarewards.com

To learn more about HSA’s and the recent federal legislation that has made them even more attractive to people over the age of 55 click: http://www.treas.gov/offices/public-affairs/hsa/about.shtml to read all about them on the Federal Governments HSA educational web site. To learn more about H.S.A.’s in a power point presentation format please click here: http://www.hsacenter.com/

If you are an employer and are considering HSA qualified plans for your employees consider this. An individual’s employer can make contributions that are not taxed to either the employer or the employee. The combined income and payroll tax deductibility leads to discounts for health insurance of over 40 % in some cases relative to other forms of insurance. For more details for the employer http://www.treas.gov/offices/public-affairs/hsa/faq_employer-participation.shtml

Fortunately, these health savings accounts provide a tax deduction equal to your premium. Paired with a high deductible health plan, these plans provide significant tax savings that can be used for over the counter medication, chiropractic medicine and other items that might not be covered by your major medical plan.

The plans work like this: Iff you had a $5400 family deductible with 100% coverage after that deductible is reached (a very common plan), you’re total cost would have been approximately $3240 is total expenses after your tax deductible health insurance deduction. If you don’t use the funds setup in the HSA, they roll over each and every year unlike an employer sponsored flexible spending account. Although you’re responsible for paying everything up to your deductible, insurance companies are betting you’ll be more frugal with your money and compare services provided by different doctors and hospitals to find the best care for the most affordable price.

Contrary to popular belief, the vast majority of Individual/Family Health Insurance policies purchased on the open market (other than Blue Cross) DO INDEED cover pre-existing conditions such as Hypertension (elevated blood pressure)& Hyperlipidimia (elevated cholesterol) providing that these conditions are:

1.) Well controlled by medication
and
2.) Disclosed on the Health Insurance application.

Coverage may cost a bit more for that applicant due to a “co-morbidity” underwriting “load” that will be applied to their portion of the family premium. However, both conditions and the medications one uses to control them will indeed be covered from day one on the majority of Individual/Family Health Insurance policies.

Melanie was partially correct regarding Depression/Anxiety. The vast majority of carriers do not cover these conditions. However, this does not mean that a person with Depression/Anxiety will be declined for Individual/Family Health Insurance.

Instead, an “exclusion rider” will be placed on the policy pertaining to these conditions. Or (as many carrier are doing now) the policy will simply state in it’s wording that “there will be no coverage provided for Mental Nervous Disorders”. However, the policy will still provide coverage for the vast majority of other medical conditions that the applicant may suffer from in the future.

This again, is one of the primary reasons why no one should purchase Health Insurance without the guidance of a reputable and knowledgeable Broker.
Most especially since it costs NOTHING extra to do so.

I will be checking out Frugal Dad from now on. Thanks so much for such a helpful blog!

[...] suddenly found yourself out of a job and essentially “self-employed,” Frugal Dad covers self-employment health coverage options this week. If you’re still lucky enough to be working, or are considering how to get back on [...]

More importantly, I wanted to address the issue of Assurant Health. Since not only had Ric had mentioned that one can purchase an Assurant Health Temporary Policy from any State Farm agency, but they are also the insurance company who left the gentleman featured in the aforementioned Time Magazine in the lurch with untold sums of unpaid medical bills because he purchased Temporary Health Insurance coverage.

Normally I would blame this scenario on the ignorance of the insured in this case since he did not do proper due diligence prior to policy purchase. However, Assurant Health has fallen from grace since they were known as Fortis Health. Very soon after they left went public on their own (separate from Fortis “A” in Belgium and Fortis “B” in the Netherlands) they started offering substandard products under the name of “Saver” which expose the insured to catastrophic out of pocket expenses. This being the case, we no longer recommend Assurant Health to anyone if there is any other option.

And this is what separates a Broker from a “captive” agent. Ric mentioned that you can purchase a temporary policy from State Farm. The problem with State Farm is that they hold a “captive” contract with Assurant Health. This means that they can not offer any other product to their customers and this is NEVER good for the prospective insured because there is no single insurance company that can meet everyone’s needs. Most especially not Assurant Health who’s products are ridiculously overpriced and several (”Right Start” etc.) contain coverage caps and out of pocket risk not found on other legitimate health insurance policies.

Not knowing the difference between a quality health insurance product and a substandard product can lead to horror stories like this one: http://www.cbsnews.com/stories/2007/05/24/cbsnews_investigates/main2850054.shtml By the way, recognize the insurance company in the video?