My Personal Finance Blog

A retirement health plan is also known as Health Savings. They were established as part of the Medicare Prescription Drug, Improvement and Modernization Act which was signed into law by President G.W.Bush and was developed to replace the Medical Savings Account system.

Retirement health plans are a tax advantaged medical savings account available to taxpayers of the U.S. who are enrolled in a high deductible coverage plan. The funds deposited are not subject to federal income tax at time of deposit. Funds deposited to your retirement plan roll over and accumulate year to year. A savings plan is owned by the individual. Beginning early 2011, you will not be able to pay for over the counter medications with your health plan ( see section 9003 of H.R. 3590). Withdrawals from your retirement health savings plan not used for medical treatment are best used after retirement age. If taken earlier, they may incur penalties.

Funds in your retirement health savings plan can be invested in the same manner as in an individual retirement account (IRA) sheltered from taxation until the money is withdrawn and can still be sheltered.You always need to speak with a financial specialist, CPA or tax attorney before making any investments toward your future.

The benefit to your health plan is generally less of a premium than that of a traditional health insurance plan. Over time, if your medical expenses are low, and contributions are made on a regular basis to your retirement health saving plan, the account can accumulate significant assets that can be used for your health care tax free. They can also be used for your retirement on a tax-deferred basis.

Nothing is more precious to us than having good health. Everyday people are getting more aware of the importance of having good health in order to be able to l8ive life to the fullest. But as the saying goes nothing is certain in this world, we will always have uncertainties and surprises good or bad in our life. We do get sick once in a while flu or even some major illness, or get ourselves involve in accidents. What ever the case may be these events when they happen to us could deplete our savings or even push us to bankruptcy. With the rising cost of hospital fees, laboratories and doctors’ fees it is now expensive and complicated. This is where health insurance could benefit us all. Yes, health insurance may cost a lot but having no health insurance at all cost more. Medical bills incurred from an accident could burn a hole in your savings. And in cases of cancer treatments, with all the doctors’ check ups, laboratory tests, and chemotherapy that one has to go through it could ruin you financially.

Health insurance could help you pay for the cost of a regular medical check ups, surgeries, contact lenses and glasses and even emergency treatments. There are two basic kinds of health insurance plan, the indemnity plan and the managed care plan. Indemnity plan is also called the fee for service plan. It has wider freedom and flexibility in the choices of the insured. He gets to pick the doctor, hospital and laboratory and other medical service provider of his choice. As long as the medical service is included in the health contract. But, the catch is the plan doesn’t pay for the entire charges, instead the insured shoulders the 20 % of the payment. This kind of plan covers only illnesses and accidents but preventive care like flu shots and birth control are not included. And coverage of the cost of prescription drugs and psychotherapy will depend on the policy and the company.

Managed Care Health insurance differs from the indemnity plan in a lot of ways. First, choice of doctors, hospitals, laboratories and other medical service provider is

limited to only those who have contracts with the HMO –Health Maintenance Organization–.Medical services is received only if authorized by the plan. If you insist on engaging on non authorized medical service provider then the cost of service or care provided will not be paid by the company. Preventive care and mental health treatment are covered by the plan.

Due to the rising demands for better and wider health insurance coverage, the health insurance is offering hybrid plans. Wherein, they combine the benefits of HMOs and indemnity coverage. The method is you can use the network of medical service providers that have contracts with the HMO but you are allow to choose someone outside of the network and pay for  a higher percentage in the  fee.. Managed Care plan also allows open access theory, where one can see a network medical specialist without any referrals from HMO.

You need to decide carefully in choosing the right health insurance plan for you and your family needs.  You need to have a careful evaluation on what your family needs and extensive research for the right health insurance company that will provide for those needs. Keep in mind that the lowest premiums don’t really mean it’s the cheapest plan.  Remember the cheapest plan is the policy that will give you the best benefits that your family really needs in case of emergencies and illnesses.

Health Savings Accounts are an excellent way to build a second retirement account. These tax-favored accounts, which have only been available since January of 2004, can be opened by anyone with a qualifying high-deductible health insurance plan. Once you open an HSA account, you can place tax-deductible contributions into it, which grow tax-deferred like an IRA. You may withdraw money tax-free to pay for medical expenses at any time.

The biggest reason more people don’t retire before age 65 is lack of health insurance, and many Americans reach age 65 woefully unprepared for the medical expenses they’ll face once they do retire. One of the most important long-term reasons for establishing an HSA is to build up some money for medical expenses incurred during retirement.

Fidelity Investments reports that the average couple retiring in 2006 will need $190,000 to cover medical expenses during retirement. This assumes life expectancies of 15 years for the husband and 20 years for the wife.

HSAs are, without exception, the best way to build up money to pay for medical expenses during retirement. You should not contribute any money to your traditional IRA, 401 (k), or any other savings account until you have maximized your contribution to your HSA. This is because only health savings accounts allow you to make withdrawals tax-free to pay for medical expenses. You can take these distributions anytime before or after age 65.

Your HSA contributions won’t affect your IRA limits — $3,000 per year or $3,600 for those over 55. It’s just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

For early retirees who are healthy, a health savings account can also be a smart option to help lower their health insurance costs while they wait for their Medicare coverage. The older someone is, the more they can save with an HSA plan. For many people in their 50′s and 60′s who are not yet eligible for Medicare, HSAs are by far the most affordable option.

Any money you deposit in your health savings account is 100% tax-deductible, and the money in the account grows tax-deferred like an IRA. For 2006, the maximum contribution for a single person is the lesser amount of your deductible or $2,700. In other words, if your deductible is $3,000, you can contribute a maximum of $2,700; if your deductible is $2,000, then that is the maximum. For families, maximum is the lesser of $5,450 or the deductible.

If you’re 55 and older, you can put in an extra $700 catch-up contribution in 2006, $800 in 2007, $900 in 2008, and an additional $1,000 from 2009 onward. The contribution limit is indexed to the Consumer Price Index (CPI), so it will increase at the rate of inflation each year.

How much you accumulate in your HSA will depend on how much you contribute each year, the number of years you contribute, the investment return you get, and how long you go before withdrawing money from the account. If you regularly fund your HSA, and are fortunate enough to be healthy and not use a lot of medical care, a substantial amount of wealth can build up in your account.

Health savings accounts are self-directed, meaning that you have almost total control over where you invest your funds. There are numerous banks that can act as your HSA administrator. Some offer only savings accounts, while others offer mutual funds or access to a full-service brokerage where you may place your money in stocks, bonds, mutual funds, or any number of investment vehicles.

One of the biggest advantages of retirement accounts like HSAs are that the funds are allowed to grow without being taxed each year. This can dramatically increase your return. For example, if you are in the 33% tax bracket, you would need a 15% return on a taxable investment to match a tax-deferred yield of only 10%.

As another example, if you are in a 33% tax bracket and were to invest $5,450 each year in a taxable investment that yielded a 15% return, you would have $312,149 after 20 years. If you put that same money in a tax-deferred investment vehicle like an HSA, you would have $558,317 – over $240,000 more.

Because catch-up contributions are allowed only for people age 55 and older, if one or both of you are under age 55 you should establish your HSA in the older spouse’s name. This will allow you to capitalize on the expanded HSA contribution limits for people in this age range and maximize your HSA contributions. Once that person turns 65 and is no longer eligible to contribute to their HSA, you can open another health savings account in the younger spouse’s name.

Strategies to Maximize your HSA Account Growth

If your objective is to maximize the growth of your HSA in order to build up additional funds for your retirement, there are three important strategies you should implement.

Strategy #1: place your money in mutual funds or other investments that have growth potential. Though this is riskier than placing your money in an FDIC-insured savings account, it is the only way to really take advantage of the tax-deferred growth opportunity that an HSA provides.

Strategy #2: delay withdrawals from your account as long as possible. Though you may withdraw money from your HSA tax-free at any time to pay for qualified medical expenses, you do have the option of leaving the money in the HSA so that it continues to grow tax-free. As long as you save your receipts, you can make medical withdrawals from your account tax-free at any future date to reimburse yourself for medical expenses incurred today.

As an example, let’s say a 45 year old couple places $5,450 per year in their HSA over a period of 20 years, they have $2,000 per year in qualified medical expenses, and they get a 12% return on their investments. If they withdraw the $2,000 from their HSA each year, they’ll have a net contribution of $3,450 per year into their account, and they’ll have $248,581 in their account when they begin their retirement years.

If on the other hand they delay withdrawing that money, they will have $392,686 in their account at age 65. If they choose they can withdraw the $40,000 to reimburse themselves tax-free for the medical expenses incurred during that 20 year period, and still have $352,686 in their account – over $100,000 more than if they had withdrawn the money each year.

Strategy #3: make the maximum allowable deposit to your HSA at the beginning of each year. Even though you are allowed until April 15 of the following year to make deposits to your HSA, you should take advantage of the tax-free growth in your account by funding it as soon as possible. The extra interest you can earn by contributing to your account on January 1 of each year rather than the next April 15 can amount to over $40,000 in a 20 year period, and over $100,000 in 30 years.

Using Your HSA to Pay for Medical Expenses during Retirement

When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Though Medicare will pay for the majority of health expenses during retirement, there many be expenses that Medicare will not cover. Nursing home expenses, un-conventional treatments for terminal illnesses, and proactive health screenings are all examples of medical expenses that will not be paid for by Medicare, but that you can pay for from your HSA.

Long-term care is assistance with the activities of daily living, such as dressing, bathing, or feeding yourself. It can be provided in your home, a retirement community, or a nursing home. Long-term care expenses can be paid for using funds from your HSA, and long-term care insurance can even be paid for from the HSA up to the following maximum annual amounts:

- Age 40 or under: $260

- Age 41 to 50: $490

- Age 51 to 60: $980

- Age 61 to 70: $2,600

- Age 71 or over: $3,250

To establish a health savings account, you must first own an HSA-qualified high deductible health insurance plan. Compare HSA plans side by side to determine the best value to meet your needs. Once you have your high deductible health insurance plan in place, you can open your Health Savings Account with the financial institution of your choice.

Many people are complaining about their health insurance costs, having a dramatic increase in rates over a short period of time. Some policyholders have noticed that their rates increased by 30% over the last two years and that definitely rings a bell, when a good portion of your income is spent on health insurance. In this time when every spare dollar counts, people are looking for ways to minimize their expenses and insurance, whether health, car or homeowners, is the first thing that comes in mind when cutting costs. Some people choose to drop health coverage altogether, ending up with astronomic bills for any medical service they get. Others are more careful with their decisions and first investigate what other types of health insurance can bring to the table. Here are some things to consider if you want to minimize your insurance costs.

Should I get individual or group health insurance plan?

There are a lot of questions about group and individual health insurance. Of course, group plans are very convenient in the sense that you can insure your entire family and pay out a single premium rather than have multiple separate policies, which only multiply the annoying paperwork. However, group health insurance usually has higher rates as it should guarantee that even high risk customers within the group have adequate coverage. This, of course, makes the healthier group members pay for the risk they share with the less healthy members. Such a situation can be acceptable if there are different health issues among different members. But if your family is healthy in general it would be more cost effective to purchase separate individual policies for each member, because the rates in individual plans are based on your particular health situation and if it’s OK then you will get much lower rates than with a group health insurance plan.

Outline your exact insurance needs and get an appropriate plan

If you are looking for cheap health insurance you first have to determine what your exact insurance needs are. Analyze your conditions, see how often you go to the doctor and what particular services you are using most frequently, and choose a plan that gives you the base rates for your exact needs. With so many different plans out there on the market you should definitely find the one that will give you cheap health insurance and will address all of your needs to the proper extent.

Finding cheap health insurance while self-employed

Those workers who are self-employed often find it hard to get adequate coverage for a low price. The group health insurance benefits that an employer can give their workers don’t apply here, and in most cases self-employed specialists have to go with independent individual health insurance plans that can sometimes be quite expensive. However, if you are leaving a workplace with good group health insurance benefits, you may fall under COBRA regulations in certain circumstances and continue receiving group health benefits while already being self-employed. If your previous employer didn’t have any group health benefits, it would be better to go independently.