The Big 'Picture of Health'

As of 2004, General Motors was paying more in health care costs to the Michigan Blue Cross than they did for rubber or steel.  This is becoming more prevalent across the U.S. with health care costs continuing to increase with no end in sight.

What this means for many employees and employers is a developing crisis. 

"When written in Chinese, the word 'crisis' is composed of two characters. One represents danger and the other represents opportunity." John F. Kennedy

This crisis is also an opportunity to utilize an additional tax deferment vehicle.  Acting like an IRA, a Health Savings Account (HSA) allows any funds that are not used for health expenses to grow tax deferred.  And, just like an IRA, any funds that go into an HSA account do not get taxed as income.  In addition, the withdrawals are not taxed if used for qualified health related expenses.  (The definition of 'health related expenses' can vary for different plans).  This can be an extremely powerful addition to your retirement repertoire if allowed to grow.

The idea being that this will reward the practice of preventive health by shifting the check writing task to the patient instead of the insurance provider.  Thus, the pain involved in writing a check for your health care costs will cause you to start shopping around.  This will also lessen the burden of insurance premiums on employers.

We must face it, unless we introduce competition into the medical system, the system will become increasingly socialistic.  It is shocking to know how many U.S. citizens think that the only alternative left is socialized medicine... but I digress.

Getting back to HSA's...  An HSA is composed of a high-deductible health insurance plan and a separate savings account under the direction of a willing trustee (as is a traditional IRA).  Depending on your particular company's plan, the maximum contribution to the HSA is $2,600 if you are single and $5,150 if you are married.  The contributions can then be invested in mutual funds where future expenses can be pulled from the earnings.  However, when first building up the funds in the HSA, leave some in a cash position for at least a year so you can readily access the funds should a medical issue arise.  A money market mutual fund is a good way to keep cash available since it usually pays some interest.

The Less You Spend, The More You Get To Keep

By the way, you do not have to pull money from the HSA to pay for medical expenses.  This practice allows your HSA to continue to grow which gives you more flexibility later on to handle larger potential medical issues.  For example, my wife and I usually try to pay for Asprin or bandaids out of our cashflow since those expenses are easy to absorb.  That way, we don't have to sell a mutual fund which can have trade costs associated with them anyway.

Unlike a flexible spending account (sometimes called a cafeteria plan), HSA's do not have to be spent during that year.  This allows the funds to accumulate year after year.  The HSA then allows you to pull money from the account for retirement income once you reach 65 without incurring a 10% penalty.  Similar to an IRA except the penalty-free withdrawal age is 59 1/2 for the IRA.

You will also want to see if your doctors are included in the insurance plan's group of approved doctors and if you are covered for the services you need.

Please feel free to call or contact us if you want to know more.

Securities Offered Through Dominion Investor Services, Inc. Member FINRA and SIPC.