Questions on HSAs

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JANUARY 2005 - Regarding the article “Medicare Prescription Drug Act of 2003: Tax Incentives Encourage High-Deductible Medical Insurance Plans,” by Kenneth A. Hansen, Robert Dosch, and Steve Carlson (September 2004), I have some questions.

First, the authors mention that health savings accounts (HSA) can be used in conjunction with plans without deductibles. How can a person who does not participate in a high-deductible plan fund an HSA?

Second, I pay a small premium ($172 per month) for health insurance that has no annual deductible or out-of-pocket maximum but does not cover preventive care. If one of my children is hospitalized, the policy covers the first six days at $500 a day, which is worth the premiums. Some people might say I am rolling the dice, but to me I am simply paying for my family’s health expenses as they occur and hope to use an HSA or a flexible spending account (FSA) to pay them pretax. This method still costs me the $3,000 (FSA) and $1,900 for the accident health plan.

Last, I think paying $500–$800 per month for insurance is beyond what most people can afford. If I earn $50,000 per year and net approximately $35,000 after taxes, that leaves me with $2,916 a month to pay bills. Monthly rent of $2,100 and monthly groceries of $600 leaves $216 a month to pay for health insurance, utilities, and family activities. In five years, my credit card balances will be $30,000–$40,000 and I’ll consider bankruptcy. This is a situation faced by millions of middle-income American families for whom HSAs provide no relief. Addressing this political issue would go a long way toward fixing the inequalities caused by the richest country in the world providing the best health-care coverage to the majority of, but not all of, its citizens.

Patrick Callaghan
Dutchess County, N.Y.

The Author Responds

To answer the first question, except for the additional allowed insurance items described in the answer to the next question, funding an HSA requires that the individual be covered for medical-care insurance only by a high-deductible health insurance plan. Only when this prerequisite is met can this same high-deductible health insurance plan offer some preventive care services (e.g., prostate cancer checkups, annual flu shots, or mammograms) with no deductible or only a small deductible payable by the insured.

As for the second question, the writer describes insurance that pays a fixed amount per day, which is an allowable exception to the exclusive coverage by a high-deductible health plan and does not disqualify a person covered by a high-deductible health plan from contributing to an HSA. Other disregarded insurance coverages are accident insurance, disability insurance, dental care, vision care, workman’s compensation, and insurance for a specific disease or illness. You can start contributing to an HSA if you purchase a high-deductible health plan, even if you are still covered by the policy you described that pays a fixed amount per day during hospitalization.

Kenneth A. Hansen,
University of North Dakota




















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