After I posted my tale of the health care cynic, commenter John Parker suggested that Matt might be able to further benefit from having a Health Savings Account (HSA). He mentioned that since Matt is a sole proprietor and has a "high-deductible plan" he could get additional tax saving by putting money aside pre-tax for his health costs.
I was familiar with the concept because several of the companies I worked for had that kind of option...which I never took advantage of.
But since I, too, am a sole proprietor with what I consider to be a high-deductible plan, my interest was definitely piqued.
So, I turned to my trusty sponsor and asked: "hey is this true, and what does it actually mean?"
Read on for the answer...which made me realize how non-savvy I am as a consumer...
So the short answer is, "yeah, it's true."
Not that the short answer is ever enough, so here was the full answer:
Matt is currently not on a HSA plan, but he would reap greater tax benefits if he was. Each plan must be specifially qualifed by the health insurance company to be considered HSA-eligible.
Basically an HSA program has two parts:
-a high deductible health plan
(at least 1,000 for individuals and $2,000 for families)
-an IRA style savings account.
You get to deposit tax free money into your savings account up to your deductible every year. You can use the money in the account for medical expenses until you reach your deductible and the list of qualified medical expenses is really broad...eyeglasses, Rx, dental etc. The unused funds roll over every year until you reach retirement at which point you have a nice nest egg for post retirement medical expenses.
I was also provided with this link to an article on HSAs.
I still had one question after reading it which was: how do withdrawals work? I mean, the article says you can use the money to buy over the counter medications (I take Claritin every day...and most carriers won't cover any other allergy drug now that Claritin is available OTC.) How do they know?
So, my intrepid contact filled me in: most HSAs give you a debit card or even special checks, and you can use those to pay for your items. At any rate, at the end of the year when you do your taxes, your withdrawals from your HSA better equal your medical expenses. Of course, as always, there is a disclaimer which is talk to your own accountant and health care provider to make sure you fully understand their HSA offering and that you follow the regulations properly.
She even provided me with an online calculator to see if HSAs would help me. Which they would. Which is nice.
Only the punchline is that Kaiser doesn't support them yet.
(Apparently these only become available in January 2004. Some carriers, like Matt's Golden Rule" were quick on the trigger. Some carriers, like Kaiser...not so much.)
OK, so there's everything you never knew you wanted to know about HSAs