Start saving with health accounts

MIKE MIELE | PERSONAL FINANCE
Since World War II, the U.S. health care system has been built on the assumption that most employers will provide their workers with insurance. That solution is under extreme pressure as health costs and premiums have gone up at twice the rate of inflation.

Today more and more companies are testing the waters of an approach that exposes their employees to more of the costs of health care. The theory is, if the money comes out of employees' pockets, they will use only what they need and shop for the best value. This theory goes under the label of consumer-driven health care and it is controversial.

Many employers and self-employed individuals are investigating consumer-driven health care with individual health benefit accounts due to the convergence of three powerful trends:

• Rapidly increasing premiums for traditional health insurance.

• A backlash by employees and providers against managed care with provider-side cost constraints.

• A rise in health care consumerism fueled by the Internet and direct-to-consumer advertising for health products and services.

Employers and self-employed individuals are exploring whether these consumer plans can contain health care costs and increase consumer choice and satisfaction concerning health care. There are different names for the health care accounts.

The most popular one people are talking about is health savings accounts. These were created by the Medicare bill signed by President Bush in December. They are a tax-sheltered savings account similar to the IRA but earmarked for medical expenses. Deposits are 100 percent tax-deductible for the self-employed and can be easily withdrawn by check or debit card to pay routine medical bills with tax-free dollars. Larger medical expenses are covered by a low-cost, high deductible health insurance policy. What is not used from the account each year stays in the account and continues to grow interest on a tax-favored basis to supplement retirement, just like an IRA.

Who qualifies for a health savings account? Anyone under 65 who buys a qualified high-deductible policy can open an account. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan either as an individual or a dependent although you can still have other disability, dental, vision and long-term care insurance policies...for more of the story