Skip to comments.HSAs offer a strategic advantage
Posted on 04/29/2008 1:48:54 PM PDT by RKBA Democrat
Do your clients have health savings accounts? If you can't answer that question or if you aren't interested enough to concern yourself with HSAs, then you and your clients are missing an opportunity and an investment advantage.
Since 2003 when President Bush signed them into law, HSAs have been touted as the 401(k)s or individual retirement accounts with a health twist. Tax-deferred, these accounts are consumer-driven health plans, which promise to help employers control health-care costs by placing some health-care responsibility and accountability with employees.
Last year, there were 1.9 million HSAs, according to an estimate from Celent Communications LLC of Boston, a financial research firm.
In 2008, Celent expects HSAs to number around 3 million. The growth comes after a 36% increase in 2006 and a 60% increase last year.
The number of accounts and investment opportunities will in-crease as health-care costs rise and the government continues to develop strategies for increased health care coverage, and as consumers shoulder more of the responsibility and rewards for their own health care. By 2012, HSAs could number 20 million, with more than $200 billion in assets.
Despite the myth that HSAs cater to the healthy and the wealthy, HSAs are widespread in use, cutting across the demographics of age, income, and portfolio size.
HSAs are available to any individual who is covered by a high-deductible health care plan, who isn't covered by any other insurance, and who hasn't tapped into Medicare. There are no income limits, earned or not, that restrict who contributes to HSAs, and both employers and individuals can feed the accounts.
In 2008, contribution levels were $2,900 for an individual and $5,800 for a family in pre-tax dollars. Also, individuals age 55 and older can also make catch-up contributions of an additional $900 and $1,000 this year and next.
The funds grow tax-deferred, and as long as they are withdrawn for qualified medical expenses, there is no tax liability. There is no requirement to spend down account balances as there is for some retirement plans and IRAs.
Also, individuals can make a one-time transfer from their IRA to an HSA, subject to the annual contribution limits.
So what does this mean for your clients?
HSAs are more than a mere insurance policy or a savings account for health expenses. They are a long-term investment vehicle for retirement planning, and they should be part of the big-picture strategy.
In fact, many account holders even choose to guard their HSA funds and pay for health expenses out-of-pocket to protect the tax-free growth of their accounts.
It is time for HSAs to be brought under the umbrella of the client's investment portfolio, rather than living in isolation. Clients need guidance on how to direct and manage those funds, just as they seek advice on how to groom other assets.
And what does this mean for the investment adviser? HSAs change the relationship.
First, advisers will need to understand what sort of HSAs your existing custodians offer, or if it is necessary, to find other financial relationships to determine the costs and structure of the product, and how it fits into the financial picture of the client.
After that, you will need to understand health insurance.
With HSAs, you inherit a whole new set of investments and possibly a lot of questions about health:
Should clients pay for their medical expenses from the account, or save the money for future use? Should your clients opt for a $5,000 or a $3,000 deductible? Should they roll IRA funds into an HSA this year?
How much should they save for health care needs in retirement? What other health care strategies, such as medical, long-term care, supplemental health insurance and health management do they need to line up?
Health care has become an issue for financial planning, and it is becoming a central issue for retirement planning. In fact, one of the top reasons people withdraw money early from 401(k)s is to cover medical bills.
To rewrite its impact in numbers, if you were calculating a person's average monthly cost in health insurance at retirement in the hundreds of dollars, you instead should start calculating it at a few thousand dollars, according to the Minneapolis-based Devenir Group LLC, which develops HSA investment platforms.
Health care, not just HSAs, needs to be part of the investment strategy and ongoing discussion.
bm for later
HSA are GREAT! My employer was putting in $180.00 each month in my HSA savings account. The monthly investment is now $120 per month since Democrats took control of congress. My cost of health insurance was $200 per month minus $180, or $20 per month. I do have a high dedutible of $3000 per year. However, I have more than the dedutible in my HSA bank account.
Last month congress voted to make the HSA more expensive by requiring each medical expense to be veviewd by a 3rd party (legislation sponsered by democrats). This passed but President Bush said that he would veto.
Bottom line....HSA are good because you have choice and the money in the account is yours. This is why the democrats do not want HSAs...
HSAs are great, they also help keep costs down because people feel like its their money and are less likely to waste it.
How are the funds treated for income tax purposes? Deductions? The 7% limitation?
I've never figured that out to date, and I fear that my acoountant hasn't either.
I established an HSA for my organization over a year ago and absolutely love it. It’s a win-win-win for everyone as consumers finally have ownership in how their health care dollars are spent. Our organization cuts costs on premiums and we have healthier employees; the insurance company saves and the consumer has incentives to stay healthy while being provided with another vehicle for retirement.
“HSAs are great, they also help keep costs down because people feel like its their money and are less likely to waste it.”
I would also add that it gives motivation for individuals to negotiate for health services. Along with the motivation it gives some leverage back to the individual.