The $5,800 – $11,600 tax deduction you could be missing

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Why Health Savings Accounts (HSA)s Look Better than Ever Since I entered the insurance business in 1983, I have never seen so little information available to buyers on such an important decision as health care. I teach insurance planning, for goodness sakes, and even I have trouble rooting out critical issues in my own Blue Shield policy.To put it bluntly — buyers beware. And be educated!

One way many of my clients are responding to increased medical insurance costs is with a High Deductible Health Plan, combined with a Health Savings Account (HSA). A Health Savings Account (HSA) is a separate bank account that you set up to pay qualified medical expenses. Almost any payments you make that are tax deductible for medical care can be paid with funds from your Health Savings Account (HSA). Annual limits for 2009 are $5,800 for the individual and an $11,600 for a family. You will not have access to these funds except to pay qualified medical expenses. And there are catch-up provisions for those over age 50 just like IRA’s. If you do not use the money in your Health Savings Account (HSA) in any one given year, it can be rolled over and grow on a tax-deferred basis – much like an IRA.

Remember: you don’t need to itemize in order to get this deduction. And, if you are unable to deduct your medical expenses as they do not exceed the 7.5% Adjusted Gross Income limitation, now you can. In addition, you can use your Health Savings Account (HSA) to pay:

• Premiums on your own health insurance
• Payments for COBRA coverage
• Health plan premiums while you are receiving unemployment
• Employee cost/share of group health insurance premiums

You will want to consider your general health and your typical ongoing medical expenses before changing your health insurance plan. And watch out regarding generic prescriptions, as they are not covered on some these plans. These plans are best for individuals who are healthy and don’t typically need a lot of medical care or as a better alternative to having no health insurance.

There may also be tax consequences, so do check with your tax advisor. Hopefully, that advisor is me.

In difficult economic times, we can use ever advantage we can get. That’s why I suggest you consider turning higher premiums and lost medical deductions into found tax savings with a Health Savings Account (HSA).