In an effort to help individuals and families better manage their health care costs; insurance companies introduced the High Deductible Health Plan in 2005. Until that time, most Americans who had health care coverage relied upon a traditional plan that offered a copay at the physician’s office, a deductible and a cost sharing after the deductible known as coinsurance.
The HDHP plan offered lower premiums but required the individual or family to pay all health care costs up to the deductible. After the deductible was met, the insurance company would pay for all eligible medical expenses. The minimum deductible to qualify a health insurance plan as a HDHP is set by IRS regulation.
If the insurance plan met the standards for a “qualified” HDHP, the individual could establish a Health Savings Account. An HSA allows the owner to save money in an account to help pay for health care costs. The contributions to the HSA are tax deductible and come out of the account tax free for eligible health care expenses.
The lower premiums of the HDHP should have allowed individuals to put money into the HSA, thus building a cushion and savings for current and future health care costs. And then the recession hit. Health care was no longer about saving money but finding the lowest cost option. HDHP’s became less of a health care management tool and more of a cost management catastrophic insurance plan.
Knowing that they would have to pay “first dollar” at the doctor’s office, many families put basic health care aside. Rather than seeing a physician early, they would only go to the doctor when their illness had become severe.
Many consumers do not realize that HDHP’s have a provision that allows you to visit your physician for preventive care and it is 100% covered. There is no out of pocket cost to you. The IRS has provided guidance on what constitutes preventive care related to an HSA eligible plan. These include, but are not limited to:
• Routine prenatal and well-child care
• Child and adult immunizations
• Tobacco cessation programs
• Obesity weight-loss programs
• Screening services
The Health Savings Account sounds like a great idea, but many people do not have enough income to add money to the HSA after their monthly expenses. The IRS has provided a solution to funding the HSA. “A qualified HSA funding distribution may be made from a traditional IRA under § 408 or a Roth IRA under § 408A. A qualified HSA funding distribution from the IRA or Roth IRA of an eligible individual to that individual’s HSA must be less than or equal to the IRA or Roth IRA account owner’s maximum annual HSA contribution. “HSA contribution limits for 2012 are $3100 for an individual and $6250 for a family.
In short, you may be able to use your IRA or Roth IRA to fund the HSA without incurring taxation or the 10 percent early withdrawal penalty. Generally, only one qualified HSA funding distribution is allowed during the lifetime of an individual. Once funded, the HSA can be used to pay eligible health care costs including prescriptions, dental and medical care costs.
Health care is a hot topic today and changing rapidly. Some of the new HDHP’s offer options that include less than 100 percent coverage after the deductible is met. High deductible health plans can be a valuable risk management tool for health care. A HDHP/HSA plan is not the best solution for every individual and family. Carefully evaluate all your health care options and the plan details when making a decision. You should also consult with your tax advisor before using your IRA or Roth IRA to fund a Health Savings Account.