HSA, Health Savings Accounts - Lower Monthly Fee With Tax Free Savings

Think of the HSA (health savings account) as a combination between a high deductible insurance plan and an IRA (individual retirement account)
 
   - A Fund with Pre-Tax Dollars 
   - Accrued Interest Is Tax-Deferred
   - Pay Out Medical Bills Tax-Free

Health Savings Accounts were created to go hand-in-hand with a qualified high-deductible health insurance care plan so that individuals could pay less in monthly dues and put the savings (along with additional funds) in a tax-exempt Health Savings Account. A Health Savings Account allows you to use tax-free dollars to cover routine and minor medical expenses while you satisfy your deductible - expenses that would otherwise come out of your after-tax income. 
 
Let's take a better look at how the Health Savings Account works...essentially there are two parts...

Health Savings Accounts - How It Works

The HSA actually has two components:

First, let's look at the health insurance part of it.
At its most basic level, a Health Savings Account includes a high deductible plan. You pay a monthly premium like any insurance plan to keep this protection in force. Note that the premium is usually much cheaper than other plans. 
 
A deductible means that in a calendar year for covered expenses, you are responsible for 100% of the deductible amount before the company begins to pay. The other important piece is the Maximum out-of-pocket which refers to when the insurance company then begins to pay 100% (we are talking about catastrophic care here). Usually between the Deductible and the Maximum, you are paying a percentage.
 

Now let's look at the exciting part for self-employed and small business...the HSA savings account.
By the book, Health Savings Accounts are tax-favored accounts set up to pay for certain medical expenses and to allow for the build-up of savings to pay for future medical expenses. Accounts are set up with banks and certain other qualified financial institutions.

Let's dig a little deeper...
You are allowed to fund this account with up to 100% (up to certain limits) of your plan's annual deductible (pro-rated for less than a year) with pre-tax dollars. This account is set up at a separate institution than the insurance company. You can find a list of HSA administrators here. 
 
Money not used rolls over year to year. In fact, it earns interest tax-deferred. Past a certain limit, you can also choose to invest the excess depending on the bank or institution you choose to go with. You can continue to add up to 100% of a year's deductible...year after year. This money is separate from the premium you pay each month to keep your California health insurance in place. You own this money just like an IRA or savings account. This is the first part...funding and growing pre-tax. 

The second part is where this plans actually surpasses an IRA...
For certain medical, dental, and long-term care expenses, payments made from your established and funded account is not taxed or penalized. At 65 you are able to withdraw this money penalty-free but subject to income tax. If you withdraw the money for non-eligible expenses before the age of 65, it will be subject to a 15% penalty and income tax. 

So to sum it up ...

The HSA is a High Deductible Health Insurance plan combined with a tax-favored Savings account
-  funded with pre-tax dollars 
-  accrues interest tax-deferred
-  pays out medical bills tax-free

Now let's check out the monthly premium rates which are much cheaper than standard plans.

Health Savings Accounts - Rates

Below you can find the rates for HSA plans offered by major California carriers including Anthem Blue Cross.
 
First, a key point about the HSA's rates.
 
As if the tax benefit wasn't enough...there is a huge savings in monthly insurance premiums when comparing HSA's with other standard health plans. This can have a big impact for both the individual and the small group. We cover in-depth, the advantage of high-deductible plans here. Essentially, you are using your premium savings to cover the possible smaller bills that other more expensive plans would cover.

Health Savings Accounts - Doctor Networks

Now, let's look at the networks...
Network refers to the doctors, hospitals, and medical facilities that participate in an insurance plan.

Anthem Blue Cross 
Uses an EPO (Exclusive Provider Organization) or PPO network. This means there are no benefits outside the list (except in emergency situations). This list of course exactly matches Blue Cross' PPO list...approximately 46,000+ doctors and 400+ hospitals in California. They also have a PPO option. A complete online directory can be found here.
 
Blue Shield of California
Their HSA compatible plan uses a PPO.

To get a really good explanation of the differences between HMO, PPO and EPO ... go here.
 
As mentioned before, an important aspect of the HSA is that you can write off qualified medical and dental expenses as well as long term care premium expenses. Let's take a look at what qualifies in this next section..

Health Saving Accounts - Eligible Expenses

The following is a summary of medical expenses that are eligible for HSA reimbursement.
 For more information, please refer to IRS publication 502. You can order a copy of publication 502 by calling 1-800-TAX-FORM (1-800-829-3676).

Health Savings Accounts - Resources

Here are some links for further understanding of HSA's...We will be adding quality information as we find it. 

Health Savings Accounts Administrators

Here is a list of stand-alone Health Savings Account administrators.  
Make sure to contact them directly to verify fees and availability.