Small Business Health Savings Accounts
With all the hullabaloo over the new Obama health care proposals, there’s one health insurance solution for U.S. small business owners that is often overlooked – Health Savings Accounts.
Health Savings Accounts are a savings account, similar to an IRA, combined with a high deductible health plan. Passed by Congress in 2003 and in effect as of January 1, 2004, it allows both you and any employees signed up to be the decision makers in both health care and retirement planning.
There are two books I’ve read called Health Savings Accounts For Small Businesses and Individuals by Madison Groves and The New Health Insurance Solution by Paul Zane Pilzer that lay everything out, but here are the highlights…
You set up a high deductible health insurance plan, say $3000 for an individual. You put that money (tax-free) into a savings or investment account the same way you would an IRA. You also pay for the health insurance plan, but at a much lower rate due to its high deductible.
You pay for your own health care as needed out of that account up to the deductible limit, then the health plan takes over. You pay insurance rates for routine medical expenses (you’d think paying cash to a doctor or hospital would be cheaper – it’s not) out of your medical savings account and the health plan covers any hospital costs.
But here’s the kicker – if you spend LESS than the deductible, it stays in that account. That’s why young people really like this plan. The money stays in your account, gaining interest. You can spend it on any authorized medical expense tax free. After age 65, you can take money out of the account and pay regular income tax – the same as an IRA.
You’ll have to read the books or check with an accountant because I’m skipping over a few things, but it’s a great plan. I just hope the HSA accounts stay approved by the government who’s messing around with our health care.
If everyone used this plan they would be more cost conscious when going to a doctor or hospital, helping drive down the cost of health care.