Written by Michael G. Kirwan, ChFC, CLU
Published Winter 2006 in the Camden & Berks County Newsletters
The Kirwan Companies, Ltd is one of the largest producers of HSA’s for physicians in the State of NJ and we have recently experienced an overwhelming interest by our PA physicians for this “New/Old Program”, designed to allow you, the consumer, to control your own Health Care Costs!
HSA’s were formally signed into law in November of 2003, effective for 2004. They are really not new but rather the Big Brother of MSA’s, which have been available since 1997.
With the passage of the new law and the increased popularity among both the public and the carriers, many varieties of HSA Programs have evolved. Plans having both PPO and Managed Care models, which will dictate how your provider will be paid and what might be applied toward your deductible, with confusing co–pay’s, deductible’s, co–insurance’s and varying maximum “OOP – Out of Pocket” costs, are now available, and you need to carefully investigate more than just the 35% – 60% discounted premiums.
The Fortune 500 Companies do not purchase insurance, they “self–insure”. The HSA permits the small business/practice to do so on an affordable basis by selecting an agreed upon deductible limitation to our risk sharing.
While the High Deductibles associated with the HSA may be scary, approach your financial concerns like you would in the selection of your auto insurance deductible. If I increase my automobile deductible from $500 to $1,000, but realize a savings of at least $500, then the “risk–shifting” makes sense. Your HSA savings should equal or surpass your deductible, otherwise, it is probably not worth your consideration BUT!
The HSA/IRA Account should also be taken into consideration. This unique opportunity permits HSA’s to be the only “Use It and Keep It! Program in the country today. You and/or your Employer are eligible to make a “tax deductible” contributions, up to 100% of your selected deductible, into your own HSA/IRA Account. Any unused funds will be rolled over for your use in future years. In 2007, the maximum will be $5,700, with an additional age 55+ Catch Up of $800.
In addition to being “tax deductible”, monies may be withdrawn “tax free” to reimburse you and your family for your Deductible and other medically related expenses, even though the contributions were “tax deductible”.
Monies may also be withdrawn “tax free” for a number of expenses that you may not currently be covered for, such as Optical, Dental and Orthodontia. This is arbitrage at it’s best!
Example: Child’s appointment alone $2,000 In a 40% tax bracket, you would need to earn $3,333 “before taxes”.
Withdrawing the “tax deductible” $2,000 contribution from your HSA/IRA, with an “after tax” cost of only $1,200, saves you $2,133 ($3,333 before tax–$1,200 after tax).
Additional Retirement Plan – Unused funds are invested on a “Tax Deferred” basis and may be used for Retirement. A maximum yearly contribution of $5,700, invested at 4% over:
- 10 years, would be worth $50,000
- in 20 years, would be worth $100,000
LTC (Long Term Care) – Funds may be withdrawn “tax free” to pay for LTC Premiums, making the cost “tax deductible”!
Before considering any changes, it is important for you to know that your practice may have “more than one plan”, and we can assist you in determining who may most benefit from participating in an HSA plan. For those who may not benefit from, or simply are not interested in, managing their own health care, we can structure alternative plans to be offered in conjunction with your HSA Program. In addition to Group Plans, Individual HSA Plans are available for the medically insurable in PA.
Our Corporation has enjoyed over a 30 Year working relationship with the Medical Community, and we are available for telephone discussion, or in person meetings at your office, and we would welcome the opportunity to explain the extraordinary savings and tax benefits/arbitrage associated with the adoption of an HSA (or HRA) and the Tax Deductible HSA/IRA Account.