A 20 year old concept finds new traction
By Susan Fowler, CFPMs. Fowler, Certified Financial Planner, has served as vice president of sales for Golden Rule Insurance Company since 1987. Today, Susan leads broker sales and marketing for UnitedHealthcare’s individual line of business which offers health plans under the UnitedHealthOne brand. Susan can be reached at [email protected] Susan’s expertise and experience with health savings accounts goes back to the early 1990s when Golden Rule pioneered the first medical savings account (MSA). Golden Rule began offering HSAs on January 1, 2004 as soon as the law allowed, and has continued to be a market leader.
For Americans facing increased taxes and rising health care costs, the tax advantages and cost-effectiveness of a health savings account (HSA) may be particularly appealing this year.
Now with tax season coming to a close and the subject still fresh in most consumers’ minds, it is an ideal time for brokers to sit down with their clients and prospects to explain the triple tax advantages and other cost savings that HSAs can offer.
HSAs pair a tax-advantaged savings account with a qualified high deductible health insurance plan, which typically costs less in monthly premiums when compared to more traditional health insurance. HSA savings are deposited into a tax-deferred account and can be withdrawn tax-free when used for qualified medical expenses, which include health insurance deductibles as well as dental, vision and other types of care often not covered by health insurance.
The concept of a savings account for health care is more than two decades old – Golden Rule introduced the first medical savings account (MSA), a predecessor to the HSA, more than 20 years ago – and more and more consumers are becoming familiar with the advantages of linking health savings accounts with high deductible coverage.
America’s Health Insurance Plans (AHIP) reported in 2012 that more than 13.5 million Americans with individual or employer group coverage had an HSA-qualified plan, an increase of 18 percent from 2011.
Brokers are finding that while it takes just a little more time to educate clients on how an HSA works, the result is a win for both.
Selling the HSA as a risk management tool
As George Harris, a broker and Certified Financial Planner with G.H. Financial Services in Gulf Shores, Alabama, says, “Only very savvy clients know and understand HSAs when they first come in the door.
“We usually begin with a detailed discussion with the client, explain that HSAs are a risk management tool, evaluate their current coverage, and then ask ‘does this make sense financially to you?’ In the end, most people agree that HSAs make more sense. In the end, 95 percent of the health policies we write today are HSA plans,” Harris states.
Robert Allison, with Allison Insurance Agency of Oklahoma City, Oklahoma, agrees that the long-term cost savings is what persuades most of his clients to switch to HSAs. “At first, when comparing plans, most people will choose a copay plan because it is more familiar and has lots of bells and whistles. But then they realize that over the long term they will come out ahead with an HSA plan.”
Allison adds, “Whatever situation the client is in demographically – self-employed or working for an employer who offers few or no benefits, a family with small children or a couple nearing retirement age – an HSA can make sense financially.” One of the keys to explaining the advantages of HSAs is to show the client what his or her total family out-of-pocket exposure – including premiums, deductibles, coinsurance and copays – would be in a comparison between an HSA-qualified and a traditional copay plan. Then, advise the client to use these cost savings to build up the interest-bearing HSA.
Of course, the triple tax advantages are another strong selling point: money deposited into the account is tax deductible, savings earn interest tax deferred and withdrawals are tax free as long as they are used for qualified medical expenses.
For 2013, HSA holders can choose to save up to $3,250 for an individual and $6,450 for a family, up from $3,100 and $6,250, respectively, for 2012. Those who are 55 and older can save an additional $1,000 above those amounts, for a total of $4,250 for an individual and $7,450 for a family in 2013. These contributions are 100% tax deductible up to the legal limit from gross income.
Unlike flexible spending accounts, HSA dollars are not forfeited at the end of the year. Instead, they accumulate year after year, earning interest and allowing the consumer to decide when to spend and when to save.
A recent study by Fidelity Benefits Consulting estimates that a 65-year-old couple who retired in 2012 will need $240,000 just to cover their medical costs in retirement. HSAs not only enable consumers to save on taxes and health costs today, but also to save for retirement health care.
HSA savings can be withdrawn tax-free for qualified medical expenses at any age. However, after age 65, consumers can also use money saved in their HSA for any purpose as long as they pay ordinary income tax on withdrawals.
Allison said his clients are becoming increasingly aware of using HSAs as a savings tool. “More people are seeing the advantages of putting money away and saving for the future, as well as the immediate savings they see on their premiums and the tax savings they get from HSAs.”
And, Harris notes that some of his clients have built up thousands of dollars in their HSAs for retirement health care by withdrawing only what they need each year for medical care and saving the rest.
To help educate their clients about the overall advantages of HSAs, many brokers turn to web-based tools such as www.HSAcenter.com, which offers features such as calculators to compare HSAs to other health plans; informational presentations about what an HSA is and how it works; and frequently asked questions about HSAs.
HSAs are giving consumers more flexibility and control over their health care spending, and those who purchase HSA plans are becoming more engaged in how they spend their health care dollars. These satisfied clients can also mean more referrals and fewer service needs.