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5 strategies for a health-savings account

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By Andrew Housser

If you've complained that you have no control over your health care dollars, brace yourself: In the future, chances are good that you'll have more control than you ever dreamed of.

That control is likely to come in the form of a health savings account (HSA). These tax-benefited accounts allow consumers to save money (and earn interest on those savings) specifically for health care expenses. HSAs come with high-deductible health plans, which offer health insurance coverage with a much higher deductible than comes with an HMO. An individual deductible might be $1,000 to $2,000, and a family deductible might be $5,000 to $10,000.

High-deductible plans save consumers money on monthly premiums, with the idea that they invest tax-deductible contributions in their HSA. Then, if a medical need arises, a consumer can pay qualified medical expenses from the HSA fund (on a tax-free basis) -- thus paying for health care with pre-tax dollars. The funds in the HSA roll over from year to year and can be maintained indefinitely if they are not needed.

In 2007, about 20 percent of U.S. employers offer a high-deductible health insurance plan, but nearly half anticipate doing so in the future, according to Hewitt and Associates. The catch is that for many people, having enough savings in the HSA to cover the deductible can be a daunting hurdle. (To understand contribution rules, see http://www.kiplinger.com/columns/ask/archive/2007/q0118.htm.) For those in this situation -- or those who are switching to an HSA for the first time -- here are some tips to help with accumulating an HSA nest egg.

  1. Catch every (premium) drop. If you or your family is switching to an HSA from traditional health insurance, your premiums may decrease. Subtract the amount of your new premium from the old premium and save the difference. You can start accumulating savings without any change to your lifestyle.

  2. Automate your savings. Set up automatic deduction from your checking account (ideally, have the savings transferred automatically from your bank account to the HSA). Consider the savings a mandatory bill, like your mortgage or car payment -- not an optional expense that you pay if you have enough left over. After all, your health and your financial well-being are at stake.

  3. Find money where you can. Americans can be ingenious savers. Some simple methods to pinch pennies and accumulate savings include:

    • Bring your lunch to work once a week, but continue deducting the cost of eating out from your spending money or record it as a debit from your bank account.

    • De-clutter and sell your unneeded goods on eBay. If selling is too intimidating, you can use a listing service (available in most communities) that will photograph and sell your belongings for you.

    • Really save on groceries - Frequent sales, use coupons, shop at warehouse clubs. And when you see the amount on your grocery store register receipt that lists your savings, actually transfer that amount from your bank account to your HSA.

    • Save a dollar a day, either through automatic withdrawal or by putting an actual dollar in a jar. At the end of the month, you'll be at least $30 closer to your funding goal.

    • Sock away windfalls. For at least a year, throw any extra windfalls into the HSA.

  4. Start with the deductible. At a minimum, fund the HSA up to the amount of your deductible. Then, should you require expensive medical treatment, you can cover the deductible with savings, rather than needing to go into debt.

  5. Go one step further. Many high-deductible plans pay 80 percent of costs after the deductible is met, while the member pays 20 percent. Any balance in the HSA beyond the deductible amount can help pay additional costs in the event of a serious medical situation.

Remember, as long as you don't exceed your annual contribution limit in any single year, there is no such thing as too high an HSA balance. The money in the HSA belongs to you. It is an investment in your future health.

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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