Celebrate Health Awareness Week by Maximizing Your HSA

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Understanding and using the health savings account.

In honor of Health Awareness Week (Jan. 23-29), Andrew Housser, co-CEO of Bills.com, an online consumer financial portal, is offering consumers tips on how to maximize Health Savings Accounts (HSAs) and corresponding medical plans.

To obtain an HSA, a consumer must purchase high-deductible health plan (HDHP) insurance coverage. Consumers then can fund HSAs up to the maximum allowed -- typically $2,850 for an individual or $5,650 for a family. Earnings accumulate tax-free, and withdrawals are tax-free as long as they are used to pay for qualifying medical expenses.

According to the Bureau of Labor Statistics, 6 percent of all private industry workers have access to an HSA. Even though HSAs represent a relatively new health care coverage option, the trade group America's Health Insurance Plans (AHIP) found that HSA plan participation in early 2006 had tripled in the previous 10 months, to nearly 3.2 million Americans.

"The tax-free benefit was devised to compensate for consumers' taking on a greater share of their health care expenses with HDHPs," Housser said. "But despite their growing popularity, HSAs can be confusing."

Housser's tips for thriving with an HSA include:

1.    Fund the HSA to the deductible. At a minimum, fund the HSA up to the amount of your deductible. Then, even if you encounter an expensive medical treatment that results in meeting your deductible, you can pay the expense from the account, rather than relying on credit cards or loans.

2.    Fully fund the HSA. Next, determine your maximum annual contribution, divide by 12, and save that amount monthly. Automate the process if possible. Many HDHPs do not cover expenses 100 percent after the deductible is met. Instead, more like old-fashioned fee-for-service insurance coverage, the plan might pay 80 percent while you pay 20 percent. When you continue to fund the HSA, you make funds available to pay for additional expenses. "There's no such thing as contributing too much, as long as you don't go over your annual limit," Housser said. "The money in the HSA belongs to you."

3.    Get the best rate. Medical providers typically charge one rate to those without insurance, or who pay for services in cash, and a separate, "contracted" rate to insurers. Ask your medical provider for the best rate, whether it is the contracted rate or the office's best cash rate. Sometimes, the contracted rate - which can be as much as 20 percent less than the cash rate - is available only if your physician or other medical provider run your expenses through their typical claims submission process.

4.    Make expenses tax-benefited. Don't forget to take advantage of tax benefits by running expenses through the HSA. Some accounts simplify the process by providing a debit card or checks to access the HSA. Other policies require consumers to submit forms requesting a withdrawal from the account. Always pay providers directly from the account or submit your expenses to the account for reimbursement. "Otherwise, you're missing out on the tax benefits, and your medical bills might not count toward your deductible," Housser cautioned.

5.    Take what is yours. Some have compared the HSA to an IRA (individual retirement account) for your health. Your contributions belong to you, and you can keep the account if you switch jobs or retire. "Even if you switch to a non-HSA plan, or retire and move into a Medicare plan, you can still use your HSA funds to pay for medical expenses," Housser said.

6.    Celebrate after 65. Non-medical withdrawals from HSAs face a 10 percent penalty for consumers younger than 65. But for those over 65, the story changes: While consumers still must pay tax on the withdrawals if they are not used for medical purposes, the 10 percent penalty does not apply after age 65. "Regardless, it's still wise to keep your funds in the HSA account for medical use," Housser said. "It's a rare senior who does not face extra medical expenses at some point."

"By understanding their HSAs, consumers can take steps to make sure the accounts are working for them," Housser said. "In today's challenging health insurance market, the HSA can be a safe haven from skyrocketing medical costs -- if you use it to take charge of your own health."

Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and save money by choosing the best-value products and services. Since 2002, Bills.com and its partner company, Freedom Financial Network, have served more than 10,000 customers nationwide while managing more than $350 million in consumer debt. The company's co-founders and CEOs, Andrew Housser and Brad Stroh, were named Northern California finalists in Ernst & Young's 2006 Entrepreneur of the Year Awards.

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Aimee Bennett
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