Health News
Santé Magazine
Salute Magazine
Americans' concern over their health insurance and health care is at epic proportions. There is relief if you know where to look. The government has made many tax changes to assist and encourage people to use their health-care dollars wisely. When utilized correctly, they will save you money on your health-care spending.
The first program is one you must get through an employer. The official term is Flexible Savings Account. It is more generally known as a "Flex" or cafeteria plan. In simple terms, what a flex plan does is allow you to automatically deduct a set amount from your paycheck, which is then held on your behalf by a plan administrator. These funds are deducted before you pay federal and state income tax on them, effectively saving you 15 to 31 percent or more (depending on your tax-bracket). Then, throughout the year, you can use the funds you have set aside to pay for certain expenses. You have to choose from one or both of the following categories at the time you elect to participate:
1) Medical Expenses and/or
2) Dependent Care Expenses
Medical Expenses are pretty self-explanatory; however, they don't have to necessarily be covered by your health plan. Dental care (including braces), LASIK surgery, etc., are eligible whether or not they are covered by health insurance. Dependent care expenses are exactly that. If you have children or elderly parents in daycare, you can submit those receipts and get reimbursed from your plan administrator. The downside to a flex plan is that if you don't use the funds by the end of the year, you lose them...they won't roll over to the next year. So you should budget carefully for your expenses, or you may find yourself buying a case of aspirin to use up your money at the end of the year.
While Flex plans have been around for a while, similar plans that the employer contributes to are relatively new. HRAs or Health Reimbursement Arrangements have only been around for a short time, but more and more employers are offering them. As of 2006, the average cost for an employee's medical premium was $4,500 a year. Depending upon the employee's age and health, an individual policy purchased through an insurance company can be $2,000 to $3,000 a year. What an HRA does is allow the employer to get out of the health insurance business by contributing to an account for the employees to purchase their own coverage. If the employer contributes $3,000 a year and the employee's premium is $2,500 a year, the employee still has $500 left over to pay for deductibles, co-pays, etc. The employee wins by being able to customize their plan, shop for the best deal, and keep their policy up to age 65 if they should leave the employer. The employer wins by cutting their costs, avoiding COBRA administration, and having to deal with rate increases caused by high employee claims throughout the year. Your individual policy's premiums cannot be raised because of your claims. Unhealthy employees still get the same contribution, but will have a harder time getting coverage unless they can go on a spouse's plan. We talked about getting unhealthy people coverage in previous columns.
Last on the list are HSAs or Health Savings Accounts. These can be offered through an employer or purchased directly. They allow people to purchase high-deductible health insurance plans (thereby saving money on the premiums) with the added benefit of pre-funding their deductible tax-free through either:
1) Payroll deduction
2) Employer contribution
In plain language, this simply means if you have a $2,250 deductible, you can have your employer deduct almost $44 a week from your check before taxes. Any health care expenses would then come out of that money that's set aside, saving you upwards of 30 percent. Once you hit your deductible for the year, then the insurance company pays 100 percent. If your employer puts in the money, even better!
Here are some great things about an HSA: Many now have wellness care covered immediately. Also, you don't lose the money at the end of the year. Whatever you don't spend rolls over to the next year, earning interest. Once you hit 65 and retire, you can use that money to supplement your retirement. If you've been careful with your medical expenses, that amount can be quite substantial over time.
A couple of caveats need to be uncovered about the above plans. If you take moneys out for non-approved expenses, you'll typically get penalized and pay full taxes as well. Also, individual policies typically require maternity as an add-on, so be sure to check. With the trends in health insurance going toward high-deductible plans to save employers money, there is also a trend to help employees pay for smaller, first-dollar expenses through voluntary products. That is the subject of our next column. Until then, be healthy!
