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Managing Your Health Savings Account

Experts offer advice on how to get biggest bang for buck

Fourth of five stories

THURSDAY, Aug. 25, 2005 (HealthDayNews) -- An estimated 6 million health savings accounts will be opened by 2008, according to a report by Forrester Research Inc.

So if you're one of the early entrants, you may be wondering how best to manage that money.

Health savings accounts (HSAs) are a tax-free vehicle for saving money for medical expenses, but only if you're covered by a high-deductible insurance plan. You may dip into your HSA to pay the annual deductible and other out-of-pocket costs before your insurance coverage kicks in.

But there's nothing to prevent account holders from rolling money over year-to-year to fund future medical costs.

That raises some tricky questions: Should you pay for your next doctor visit with funds set aside in the HSA? Or is it better to let the money accumulate and earn interest?

"It depends on your situation," said Dan Perrin, president of the HSA Coalition in Washington, D.C., and publisher of HSA Insider, a source for HSA information.

If you don't have to take the money out, Perrin said it would be better to keep it in your HSA until you reach the age of Medicare eligibility. He believes the government insurance program for older and disabled Americans is likely to face benefit cuts in the future. When that happens, beneficiaries are going to need more money to pay for uncovered medical expenses, he explained.

"But if you need the money (now), spend it," he advised.

Tim Elenz, president of Benefits Age, a Palatine, Ill., insurance broker, strongly endorses the concept of giving people control of their own health-care dollars via HSAs. But he's also big on encouraging folks to see the doctor when they need to.

And while critics argue that HSAs won't help ill people who typically spend their deductible amount every year, Elenz insists individuals who live with chronic health conditions may be in the best position to call the shots about what care they receive.

For example, instead of being barred by a managed care plan from having a particular test or getting a referral to a specialist, they can make a withdrawal from their account to pay for the care themselves, he said.

"I think HSAs give more people the opportunity to access the health-care system," he said.

For consumers struggling to figure out how to navigate high-deductible health insurance and HSAs, Perrin has some tips:

  • Start with a properly priced health insurance plan. Look for one that provides 100 percent coverage above the deductible. That way, you won't be stuck with a gap in coverage.
  • The premium you pay on a high-deductible plan should save you roughly 30 percent to 35 percent compared with traditional coverage. If you don't see those savings or something close to that, "keep shopping," Perrin advised.
  • Some insurers, for a one-time fee, offer a "hospitalization rider." That may be good for someone who is just starting to fund an HSA. If that person lands in the hospital, he or she will get a check for the deductible minus the amount deposited in the health savings account. At the end of the day, few people will need that rider, because their chances of landing in the hospital are slim, he said. "But it gives people a psychological comfort level," he added.
  • Look for a bank, brokerage or mutual fund company that will set up and manage your HSA for a low fee or one that waives the fee entirely. Over time, high fees can eat into the interest you earn on the account.

More information

You can learn more about HSAs by visiting the U.S. Treasury Department. To read the third article in this series, click here; to read the second article in this series, click here; to read the first article, click here.

SOURCES: Dan Perrin, president, HSA Coalition, and publisher, HSA Insider, Washington, D.C.; Tim Elenz, president, Benefits Age, Palatine, Ill.; Forrester Research Inc., Cambridge, Mass.
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