No doubt about it, Colorado health insurance can get pretty expensive. In these difficult economic times, it’s hard to fit insurance premiums into the family budget. Which is why instead of getting traditional health insurance, more and more Colorado residents are turning to health savings accounts (HSA). The reason: instead of paying insurance companies for a service that they may not use, they create a stable asset that grows year-over-year and acts as a standby fund for emergency medical needs when they occur. In short, health savings accounts combine health insurance and investment.
There are two parts to obtaining an HSA. The first part is a high-deductible Colorado health insurance policy. As of 2012, the IRS defines as high-deductible any health insurance plan with a minimum deductible of $1,200 for single-coverage and $2,400 for a family, as well as a maximum out-of-pocket of $6,050 for single-coverage and $12,500 for family coverage.
Once you have an HSA-qualified policy, you’re eligible for the second part: a health savings account for covering present and future medical expenses. Anyone under 65 may open one with an accredited Colorado health insurance company that offers HSAs.
An HSA can be funded by an employee, an employer, or both. As of 2012, the maximum contribution is $3,100 for single-coverage and $6,250 for families. For seniors 55 years and above, they are allowed to pay “catch up” contributions of up to $1,000 to their accounts. HSAs are open to anyone with a qualified high-deductible plan, including employers of any size, employees, and the self-employed.
You can get a high-deductible health insurance plan without getting an HSA, but as you will see, HSAs have significant advantages that will appeal to the smart buyer:
Numerous tax advantages. First off, all the deposits you make to your HSA are tax-deductible – that is, you can exclude them from your gross taxable income. Second, any interest you earn from your HSA is tax-exempt. Third, when you use your funds to pay HSA-qualified expenses, like doctor’s fees, prescription medicines, and so on, those too are tax-exempt. Lastly, in the event of death, your remaining funds are transferred to your designated beneficiary-tax-free.
Your HSA is a permanent plan. A health savings account endures even when you change your employment status. That is, you get to keep the funds you’ve accumulated even after you leave your job. This applies even if your employer has contributed to your fund.
Your funds may be used as savings. Because of the tax benefit on the interest, you can let your cash grow over the years. Moreover, unlike with a flexible savings account (FSA), any unused funds in your HSA is rolled over to the next year. By the time you reach the age of 65, you can withdraw your funds without penalty and use it however you want. This makes your HSA an excellent means of augmenting your retirement fund, so long as you stay healthy.
Note:You are allowed to withdraw for non-qualified reasons before the age of 65, but this will incur a 10% penalty.
An HSA provides flexibility on the medical services it covers. With HSAs, it’s you (not an insurance company) who decide what you pay for. Your HSA can accomodate medical expenses not covered by the usual health insurance plan, including vision and dental care, medical equipment, related transportation costs, and non-traditional treatments like acupuncture, massage, and chiropractic care.
An HSA is a lucrative option to a traditional Colorado health plan. Rather than paying premiums to an insurance company, your money goes to your own savings account. But not just any account-you’re investing in your own health, which is the wisest investment there is.