Viewing your health package in HD

Tuesday - 11/15/2011, 2:00am EST

Health Savings Accounts (HSAs) in combination with a High Deductible (HD) health plan were introduced to the federal health benefit program five years ago and, as benefits expert John Elliott points out, they "have proved to be wildly unpopular."

Elliott thinks "it's the HD part of the equation that scares off some people." HDHPs have a higher annual deductible than traditional health plans. But he thinks you should consider an HDHP/HSA combination during the open season which runs through December 12. And this, he writes, is why:

"For 2012, an HDHP in the FEHB Program has a minimum annual deductible of $1,200 for Self Only coverage and $2,400 for Self and Family coverage (although the deductibles do not have to be met for preventive care). So why would anyone sign up for such a deal? So you can have a health savings account is why. HSAs are an excellent way to reduce your tax burden, while at the same time building up a tax-free investment account that can be used for future medical expenses, or even for other reasons.

"Information on HSAs and HDHPS, and which FEHBP carriers offer a HDHP, is found at www.opm.gov/insure. The following information is taken from OPM's website:

"By law, HSAs are available to members who enroll in an HDHP, are not Medicare enrolled, are not covered by another health plan, or are not claimed as a dependent on someone else's Federal tax return. The health plan credits a portion of the health plan premium to the HSA. You have the option to make additional tax-free contributions to your account, so long as total contributions do not exceed the limits established by law." (The limits for 2012 are $3,100 for self only and $6,250 for a family plan).

Features of an HSA include:

  • Your own HSA contributions are tax-deductible. Your own HSA contributions are either tax-deductible or pre-tax (if made by payroll deduction). See IRS Publication 969.

  • Interest earned on your account is tax-free

  • Withdrawals for qualified medical expenses are tax-free

  • Unused funds and interest are carried over, without limit, from year to year

  • You own the HSA and it is yours to keep - even when you change plans or retire

  • Your HSA is administered by a trustee/custodian.

"If you're still skeptical, I offer this testimonial from a federal employee who was in one of my seminars and was kind enough to e-mail me the following:

    'I just wanted to send you this little testimonial to my love of the HDHP/HSA plan:

    'I am the HSA guy in the FERS group. I am in Aetna HDHP and use their default HSA provider which is JP Morgan Chase, who include the ability to invest part or all of your HSA in a nice basket of mutual funds (stocks and bonds). We have half of our balance in these funds, and have made about 6.0% on them since starting this option in March. The other 50% sits in our cash portion, making about 0.7 % interest. You can set up regular periodic investment from the cash portion, kind of like you allocate contributions in tsp.

    'Aetna contributes $125 each month into my HSA (around the middle of the month) providing the first $1500 of medical expenses every year. My health plan cost to Aetna is deducted pre-tax and only total about 1900/year, (effectively only costing me 1300 because of tax savings) so I actually get more back into my HSA than the annual premium costs us !!!

    'And so, for our very low cost of health insurance, we get 100 percent free preventative care (including dental), and $1500 of additional medical costs with no copay or out of pocket expense. This would have covered all of our medical expenses over the last 10 years. Any part of this $1500 that is not used in the year just adds to our HSA balance. We also contribute the maximum amount to our HSA which saves us an additional $2000 in taxes each year. If we have a bad year, we would use our HSA to cover the additional $1,500 needed to cover the $3,000 deductible, at which point Aetna would begin paying 90 percent of the "in network negotiated cost" of medical expense. (we only pay the 10 percent until we reach the max out-of-pocket of 8K). So to actually reach that max, we would need 3K + 50K (x 10 percent) of medical expenses. Anything over that would be covered at 100 percent. We would not have to use any of our previous years' accumulation in the HSA in the most extreme catastrophic year (1 million of expenses) ! (because our contributions + Aetna's = $8,100 every year, which is greater than our max out of pocket). Meanwhile, unless this happened every year, our HSA grows rapidly over time, tax free.