Employee Benefits and Individual Health Insurance Enter the World of Financial Planning

Hinds III, Edward Dee
June 2005
Journal of Financial Planning;Jun2005, Vol. 18 Issue 6, p48
Academic Journal
• Health savings accounts, whose contributions and earnings can be used to defray health care expenses tax free, represent a new financial vehicle with which financial planners should become familiar. • HSAs can be established only in conjunction with high-deductible health plans. The starting deductible is $1,000 for individuals and $2,000 for two or more individuals. Maximum out-of-pocket expenses in 2005 are $5,100 for individuals and $10,200 for two or more. • Contributions are limited to 100 percent of the deductible per calendar year, with a maximum of $2,650 per individual and $5,250 per two or more individuals for 2005. Account holders 55 or older can contribute another $600 in 2005. • Qualified medical expenses include not only those covered under the plan but additional expenses allowed by the Internal Revenue Service such as long-term care insurance premiums. Some plans cover preventative care services on a first-dollar basis. • Employees participating in group HSA plans usually should avoid funding the account in full at the start of the year. Both employers and employees can contribute to the worker's HSA as long as maximums are not exceeded. • For the self-employed, HSAs appear to be one of the best ways to provide health Insurance .These plans also are especially attractive to younger, healthy employees, and to businesses, particularly smaller ones. • Enough HSA money should be kept in a money market or checking account to cover a full year's deductible plus other qualified expenses not covered by the plan such as dental, vision, and LTC premiums. • This article discusses some of the issues facing financial planners with the advent of this new savings and investment vehicle. It offers suggestions as to how HSAs can be most efficiently used as well as potential problems that may arise with using them. INSET: Executive Summary.


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