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New health savings accounts

| Saturday, Sept. 4, 2004

There is a little-known provision of the Medicare bill passed by Congress last year and effective this past January that could substantially reduce the cost of health-care coverage for many Americans.

Health-insurance companies are just beginning to offer these Health Savings Accounts, but they hold great promise for self-employed individuals already, as a recent Newsweek column showed.

A majority of large employers are expected to offer the option by the end of next year, according to one insurance consultant.

The Austin, Texas, family of five described in the Newsweek column used to get health insurance through the father's work. Now, as a self-employed businessman, to get comparable coverage, he was getting quotes of $1,000 a month.

With the new HSA accounts, however, the family pays $350 a month in premiums and puts $300 a month in a savings account for their future medical needs.

But you don't have to spend those savings on medical costs, if you don't have them. Those savings can be spent on retirement, college or other costs.

Financial planners describe them as a super IRAs, or Individual Retirement Account.

These are not, repeat, not, the same HSA accounts that have been available to many employees, where you can put $2,000 in pretax money into an account for your health needs that year. The big drawback is that you lose the money if it is not spent in that time on health care, so employees are conservative.

These new HSA accounts lower premiums by having high deductibles, $1,000 per individual and $2,000 per family, usually.

Just as many motorists lower their car insurance rates by raising the deductible on collision or comprehensive coverage, families can do the same with these health accounts.

Families can get up to a $5,000 tax deduction for having an HSA plan, too. And anytime you use money from the accounts for a medical expense, it's tax free.

Some health-insurance companies in Pennsylvania already are writing these policies. Plans differ by provider and state. But for those who do the research, compare costs and plans, they might be the answer to escalating health-care costs.

Many insurance companies offer paired savings and insurance accounts, so the premium and savings checks go to the same account.

People can compare insurance plans at eHealthinsurance.com. And HSAInsider.com lists all the savings accounts offered by banks, brokers and insurance companies.

We'll undoubtedly hear more about these new health-care accounts in the coming months. But some analysts see them as the wave of the future.

We certainly want to investigate anything that holds promise as a way to reduce health-care costs.

We welcome responses to our editorials. Send them by mail, email, fax (724-226-4677) or by calling our 24-hour voice mail (724-226-7792).

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