I have recently been looking into an alternative for my current health insurance. In the process, I stumbled upon the Health Savings Account (HSA - IRS Publication 969 (http://www.irs.gov/pub/irs-pdf/p969.pdf). I understand that this is intended for people who already possess health insurance and that their insurance must have a certain deductible. My question for you is this.
How would one go about proposing/creating a specialized type of HSA. Here is what I am looking at:
This Specialized HSA (SHSA) is tax-deferred savings account for medical expenses, that DOES NOT require the account-holder to have a primary high deductible health plan. In short this type of account would serve as the account-holder's primary health "insurance."
1) Contributions are made by employee and employer by payroll deduction (similiar to 401k)
2) Employee can claim a tax deduction for the contributions they or someone other than their employer make to the account, even if the employee does not itemize their return
3) Contributions from employers are excluded from gross income, which also benefits the employer by lowering their payroll tax
4) Account is portable even if employee changes jobs. Contributions remain in account from year to year until used.
5) The interest and other earning in the account are tax free which results in a higher interest rate than standard savings accounts
6) Distributions are tax free if they are used for qualified medical expenses -IRS Publication 502 (http://www.irs.gov/pub/irs-pdf/p502.pdf). These include doctor's fees, prescriptions, and hospital services.
7) You can transfer balances from cash account to mutual fund investment and back for greater returns
8) You can receive distributions at any time. If a distribution is for anything other than medical expenses, the distribution is subject to tax and additional 10% penalty tax. Distributions are reported to the IRS with form 1099-SA. Some HSA trustees issue a debit card and checks ex. (http://www.chase.com/ccp/index.jsp?pg_name=ccpmapp/shared/assets/page/hsa_home) This can be expanded so that the debit card is ALSO your insurance ID.
9 ) Distributions can be made for anyone you have claimed as a dependant, yourself, or your spouse.
I have asked around about this and I've been told by countless individuals that they would sign up for an SHSA in a heart beat BUT It'll never happen BECAUSE THE GOVERNMENT WONT ALLOW IT. I cannot find a single reason why this wouldn't be permitted. Maybe I am missing something.
I was wondering if anyone would have any insight into this. Could someone maybe point me in the right direction? Any help would be appreciated.
Posted: 02 Apr 2007 04:47 Post Subject:
Wow great idea...and concept. I think that you can do this on your own. There are ways to do this or at least I can think of a couple that would be very similar. The only problem with this idea is that it is more to protect you in the future, but what about the right nows in life? I think that in order for this type of plan to work one would have to contribute for a long period of time...but what if something happened with in the next year and there are not enough funds to pay for it. Then people are back in the same situation. Really what you are talking about is self insuring, and investing your money. I have a product at my company where you could do this...but there are still wholes to the plan...good Idea and on the right track I still think it needs some tweaking.
Unfortunalty the health industry today especially in the USA is totally messed up and is going to become more and more of a problem if it is not addressed in the very near future.
It is terrible some of the horror stories that I hear and I also just know what I go though my self and also selling health insurance I am aware of what is going on. It is a shame and we really need someone with some brains to come up with a solution to this problem before it really gets out of control.
Posted: 02 Apr 2007 05:40 Post Subject:
I can't say that I disagree completely with the idea, given the current situation with health insurance availability but I can understand why the government would be apposed.
HSP are employer funded... meaning that all of the money is available from day one. Your proposal has a person only being able to spend what has already been put into the account. This is more of an investment plan and not "insurance".
But here is a big problem... who is going to administer the program? If the employer, they'd might as well offer a HSP and probably already do. So I don't see much of a difference.
You also mention investing the money. Who would do this? Who chooses the account to invest in. I think it's obvious that it would need to be controlled by the employee. If it were, then money could be lost. I don't see the government supporting a health care system where the employee can invest funds however that want with a chance of loosing everything (they don't support it under Social Security either). As far as moving the account... well it's the same can of worms.