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Gerri Willis Commentary:
Top Tips by Gerri Willis Column archive
Health saving accounts
5 Tips: What are they and how will they affect your healthcare?
By Gerri Willis, CNN/Money contributing columnist

NEW YORK (CNNMoney.com) - The President talked about health savings accounts as a way to make health care more affordable in his State of the Union address yesterday.

But are these health savings accounts really for you? In today's top five tips we're going to tell you what you need to know about these HSA programs.

1. Know the terms

A Health Savings Account is used in conjunction with a high deductible health care policy. This combination can replace a traditional health care insurance plan offered by your company. Your employer may offer a high deductible plan that will cover your medical expenses once you hit the deductible of at least $1,050 for an individual or $2,100 for a family.

The good news is that premiums in a high deductible plan are cheaper than in a traditional health care plan, so you'll be paying less per month on health care. But once you do hit that deductible, you will still have to adhere to co-pay policies.

Your HSA is an account that you can use to help pay these deductibles before benefits kick in, or for additional medical care. HSA's are tax-free, so you can put in up to your deductible amount. In addition to paying for medical, dental and vision expenses, you can also choose to invest your HSA in stocks, bonds or mutual funds where any earnings you make are also tax free. Keep in mind that money in your HSA account must be used for medical expenses, or you'll pay taxes, plus a 10 percent penalty fee.

2. Who it helps

Health Savings Accounts should appeal to you if you are generally healthy and don't rack up many bills. The average person spends less than $700 for health care annually, according to Hewitt Associates.

HSAs can provide a great tax benefit because contributions can be deducted from your federal tax return. And many states also allow the deduction from state income taxes.

If you also tend to change jobs frequently, you also may benefit from HSA's. Health Savings Account funds go with you so and can help pay COBRA fees if you don't have a job lined up. And, unlike traditional health care plans, you can use your HSA Funds to pay for chiropractic care, a nutritionist or acupuncture work.

"If you're looking to accumulate funds for retirement medical expenses, these are great plans because your investment earnings are not taxed and you can roll them over," says Mitchell Santiago of Mercer Human Resource Consulting.

3. Who may not benefit

Health Savings Accounts may be devastating to people who are older, poorer or sicker. That's because these accounts will essentially pull the healthy and wealthy folks out of the traditional insurance risk pool, according to FamiliesUSA.

This will leave higher risk people facing higher traditional insurance costs over time. Other people may be discouraged from getting preventative treatment simply because of the high deductible.

"It's an insurance death spiral," says Bill Vaughan of Consumers Union. Right now 10 percent of us use about 70 percent of health dollars. If there is a flight out of traditional healthcare, it's the sick people who won't get the help they need.

4. Get the policy lowdown

Make sure you read up on your high deductible health care policy. And look at what is covered once the deductible is met. Like any health care plan, you may be surprised at what's not covered. Some plans don't cover medication, says Bob Hurley of ehealthinsurance.com.

Some insurance doesn't kick in if you're pregnant or have a mental disorder that needs to be treated. You'll want to make sure your policy covers hospitalization and out-patient care. You'll also want to scrutinize any limits.

In one case, a policy had a limit of $500,000. "That's nothing, it's like the cost of a dialysis," says Vaughan. "Zero in on any medical condition that is important to you," recommends Hurley "and then make sure that's covered."

Also keep an eye on fees associated with HSAs. Health Saving Accounts come with a variety of fees -- fees when you set them up, fees to maintain the account, transaction fees, and in some cases, closing fees.

Some of these fees are going down, according to Don Mazzella of www.hsafinder.com. But some health savings accounts can cost you up to $150 a year. And while these fees may not seem like much, remember you're only making 1 to 5 percent in interest on your HSA Account.

5. Be prepared for sticker shock

Buying healthcare is not like buying a television set. You may not be aware of all the prices that doctors charge. People are so used to dealing with their $15 or $20 co-pays, says Gary Claxton of the Kaiser Family Foundation. A consumer has to really do some homework to save money.

It's not easy to understand what price choices you're facing because we never had to really know the real prices of our medical procedures.

"When you have a sore throat, you don't think about the bundles of tests that go into diagnosing and making you feel better, says Claxton.

Insurance companies are more skilled at knowing the cost of an expected bundle of goods. You can easily rack up a $300 bill without even blinking an eye. Hurley recalls a story where a woman about to give birth called four hospitals to get price estimates before going to the hospital.

According to Hurley, the biggest problem with HSAs is the lack of consumer information.

"People aren't going to go shopping around if they have a stroke or a heart attack," says Pollack. "The public may not even want to do comparison shopping. They want the best care as quickly as possible."


Gerri Willis is a personal finance editor for CNN Business News and the host for Open House. E-mail comments to 5tips@cnn.comTop of page

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