Texas House Bill 1766 was created to offer Health Savings Accounts to state workers for the first time. According to Andy Homer, the director of government relations for the Texas Public Employees Association, Health Savings Accounts would bring no benefit for his membership. He remains adamant that Health Savings Accounts are only used as a political tool. Not surprisingly, the bill didn’t make it out of the committee, but exactly what do Health Savings Accounts offer?
They have been one of the fastest growing options in the private health insurance sector for years. In general, there’s been a growing movement away from the most expensive coverage options toward plans with the least expensive premiums. Those plans are typically high-deductible plans. Certain high-deductible policies can be coupled with a Health Savings Account (HSA). This option has been a money saver for employers, including small business owners, because it eats up less profit. HSA Plans are also often less expensive for employees because employers tend to shift the rising cost for premiums back to the employees.
Health Savings Accounts Are Already Used For State Employees
Indiana, for example, has used HSA Plans for state employees for some time. After five years of implementation, Governor Mitch Daniels called his HSA Plan program a success for the state employees and the state government. Proponents of HSA Plans say they definitely curb out-of-pocket costs for state employees, and studies have shown a distinct drop in health care services during the first year that policyholders try a high-deductible health plan.
Opponents say that discouraging preventive health care is suicide for society. Why pay “through the nose” for ER interventions when earlier preventive health care lowers medical costs and increases productivity by keeping people well? The proponents of health care reform acted on that warning and in all but four states, high-deductible health plans now pay for preventive health care before the deductible has been met. There are certain stipulations to that coverage, though.
Preventive care is almost always only fully covered when obtained through in-network providers. Doctors can bill separately for an office appointment if they do more than provide covered preventive health care. In that case, people may have to pay for at least part of the doctor appointment.
HSA Plan Enrollments Have Been Increasing For Years
According to a study by the trade association America’s Health Insurance Plans, 11.4 million U.S. residents (nearly 640,00 of them are in Texas) are now using a high-deductible health plan linked with an HSA. That’s a 33-percent increase in large group coverage and a 22-percent increase in small group coverage.
An annual survey by the Kaiser Foundation showed that Health Savings Accounts now comprise 13 percent of the private health insurance market. That means the number of HSA owners has tripled since 2006. The move toward less expensive premiums may not be the only motivation, though.
The increase in popularity has also been attributed to the tax benefits that are written into the HSA rules. Individual HSA owners can place up to$3,050 in an HSA, while families can make a maximum annual HSA contribution of $6,150. The contributions can be deducted from adjusted gross income even if the HSA owner never used the money for health care. And, it’s an investment option with no deadline.
With IRA investments, owners must begin withdrawing funds after they turn 65. With an HSA Plan, investors can spend HSA funds on health care to fill the gaps in Medicare or to pay for long term care insurance without paying taxes on the withdrawals. But, they can also leave the money in the HSA, invested in bonds, mutual funds or stocks and let the earnings continue growing tax free for as long as they want.
Before age 65, qualified health care is the only expense HSA funds may be used for without incurring a 20-percent penalty on the withdrawal amount. After age 65, HSA funds may be used to purchase anything at all and there will be no penalty. Regardless of the HSA owner’s age, HSA withdrawals spent on anything other than qualified health care mean taxes are due.