Health Care Costs A BusinessWeek article titled, \"HSAs Could Keep You in the Pi

Question

Health Care Costs A BusinessWeek article titled, "HSAs Could Keep You in the Pink," by Christopher Farrell describes the use of health savings accounts (HSA). HSAs were authorized by Congress. The HSA plan has two parts. First, individuals buy a health insurance policy with a high-deductible. Second, participants open an HSA, a tax-sheltered account, funded with pre-tax contributions. The account's earnings are not taxed-nor are the withdrawals when they are used to pay for qualified medical expenses. However, the HSA is not the best decision for everyone. The decision process for Brad Rosley was described in the BusinessWeek article as follows: Brad Rosley, who has a wife and three children ......made the switch. His previous insurance policy to cover his family cost him $660 a month, or nearly $8000 a year, with a deductible of $1000. Rosley replaced that plan with an HSA. He went for a policy with a $5,100 deductible and put that much into the tax-sheltered account for his family. His premium for the policy is $260 permonth, or $3,120 annually. He uses the $400 a month he's saving over the previous policy to fund his HSA. Rosley figures he could well end up with a six-figure account, since any money left in the HSA can be rolled over from year to year. That money can pay for everything from long-term care insurance to a new hip during his golden years. Instructions a. Describe any opportunity, sunk, out-of-pocket, and/or relevant costs that figured in Rosley's decision. How did Rosley calculate the $400 per month savings? b. Opponents of HSAs say that these are designed for the healthiest and wealthiest consumers. First only wealthy people will have the cash to fund the HSA. Also, these plans are inhospitable for anyone with preexisting conditions such as cancer or diabetes. Thus, the traditional plans will be stuck with a sicker pool of people to insure and this will cause them to be more expensive. Write a short paragrah about the ethics of the HSA legislation.

Explanation / Answer

People making health-care decisions for 2011 should consider two lesser-known options, say tax experts: health savings accounts, or HSAs, and health reimbursement arrangements, or HRAs. Although March's health-care overhaul slashed to $2,500 the amount people can put into medical flexible-spending accounts, or FSAs, starting in 2013, it didn't curtail HSAs and HRAs, as advocates had feared. Details differ, but all HSAs and many HRAs combine a higher-deductible, lower-premium insurance policy with an account allowing you to pay out-of-pocket costs with pretax dollars. "HSAs have a triple tax advantage," says Jackie Perlman, an analyst at H&R; Block's Tax Institute, the preparer's expert group. "Money can often go in, grow and come out tax-free if it's used for medical expenses." For most taxpayers, HSAs or HRAs are better than the medical tax deduction, which benefits few because the threshold is high. All HSAs and many HRAs are free of the use-it-or-lose-it restrictions of flexible-spending accounts. For a fortunate few, an HSA may even become a supplemental tax-favored retirement account.

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