Although the landmark legislation President Bush signed Dec. 8, 2003, was named the Medicare Bill, in fact there are some other important insurance reforms tucked into the thousand-page document. One that will be of particular interest to veterinarians and practice owners is the creation of the Health Savings Account.
The Health Savings Account provision allows individuals to set up a medical expense fund. Because the contributions to the HSA are pretax dollars, savings are immediate. But the benefits just begin there.
Your HSA is all about taking more control of your health care dollar. It's about self-management of your money. It's about lowering your premiums and reducing your out-of-pocket expenses. And it's a tax-advantaged way to self-insure against future health care expenses.
Read on to learn about the benefits.
Manage your health care dollar
Gaining more control of your health care dollar is certainly an important advantage. When you place money in an HSA, you retain ownership and management of that account. That money can be spent on Qualified Medical Expenses—the copay on a doctor's visit, for example, or your prescription deductible. You decide when and how to spend your money.
Reduce your health care costs
Saving money on your health care costs is another advantage. The beauty of the HSA is that it allows you to choose a higher-deductible plan without exposing yourself to higher risk.
A higher-deductible plan reduces your premium, and you can apply the savings to help fund your HSA.
Here's an example* of how it would work. Suppose that under your old plan, you paid $400 a month in premiums and had a $500 deductible. With your HSA, you raise your deductible to $1,200, which lowers your premiums to $250 a month. You put $100 a month (one-twelfth of your $1,200 deductible) into your HSA, for a total monthly outlay of $350 (your $250 premium plus your $100 HSA contribution). In that example, the outright savings are somewhat modest—$600 in year one. The more important figure is the $1,200 in your HSA—money that would have gone to the insurance company, but instead, you have retained control over it. You may use some or all of it to cover your deductible or other qualified medical expenses. Or, if you are fortunate enough to have few medical expenses, some or all of that money might be sitting in your account at the end of the year. Your actual out-of-pocket cost is similar to that of the regular insurance plan in a high-claims year.
Be better prepared for future medical expenses
Unused HSA funds can be rolled over into future years. If and when you should ever experience a hospitalization or other major medical need, a few years' worth of accumulated HSA funds could make a substantial contribution toward covering your out-of-pocket expenses.
Because there is no cap on how much you can roll forward, you can continue accumulating money until you need it. You don't necessarily need to get sick to use your money. The account can cover services that are not covered under your medical plan, such as vision and dental care. As an added benefit, long-term care insurance premiums may be paid from the account as well.
Take your money with you
Your HSA is also portable. This means your account stays with you if you should ever change jobs, or in the event you change health insurance coverage. If you currently have a Medical Savings Account, you may roll over any available funds into your new HSA.
Tax advantages, control, cost savings, long-term ownership of the account through rollovers and portability—these are attractive benefits. To learn more about setting up a Health Savings Account, call your insurance agent or contact the AVMA Group Health and Life Insurance Trust at (800) 621-6360.
*The example given is for informational purposes only, and the deductible and premiums may not reflect your current plan offering.