Investment

» SteveT - Here's to Your Health

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By Kathy Yakal

A FEW YEARS AGO, a friend confided that she and her husband, who were both self-employed, were shelling out about $1,000 a month in health-insurance premiums. I was surprised, because my husband and I were paying hundreds of dollars less even though we didn't have regular corporate gigs, either. Today, however -- despite our attempts to police these costs -- we're paying a good deal more than $1,000 a month for our health benefits.

Of course, you can opt out of insurance and just hope you don't get sick, but new programs like health-savings accounts, or HSAs, are a more practical antidote for the high cost of health insurance, particularly for workers who are self-employed or toil for small companies.

HSAs are tax-exempt accounts held at a qualifying financial institution. You contribute to the account and, when you incur a qualified medical expense -- most anything you could claim on your 1040 as a medical or dental deduction (see Publication 502 on the IRS Website, www.irs.gov1) -- you withdraw funds to pay for it. The payments are usually made by writing a check or using a debit card or withdrawal form your financial institution/administrator provides.

HSAs, which were created as part of a Medicare bill signed by President Bush in 2003 and enacted by Congress in 2004, are portable; that is they go with you if you change jobs. And your money rolls over every year. Contributions are tax-exempt up to a pre-set maximum, even if you don't itemize deductions. Increasingly, the accounts include investment options aimed at helping them grow.

To receive the tax-exemption, an HSA must be accompanied by a high-deductible health plan (HDHP) from an insurer; some financial institutions sell them as a package. The IRS sets the annual tax guidelines for these plans. In 2006, the minimum deductible for a single person is $1,050 and $2,100 for a family plan. In theory at least, the high deductible means the insurer can offer a better rate, and this savings, plus any additional contribution you can afford, should be enough to fund your HSA.

Note: You can't contribute more than the amount of your HDHP deductible each year, or the IRS maximum ($2,700 for individuals and $5,450 for families), whichever is lower.

Here are some of the HSA programs and investment options we turned up on the Internet.

In August 2006, Golden Rule (www.goldenrule.com2), a UnitedHealthcare company, introduced mutual-fund investment options to help its HSA customers build their balances. Golden Rule, which helped pioneer HSAs when it introduced an antecedent, the medical-savings account, over a decade ago, is working with Exante Bank (www.exantebankhsa.com3) to provide HSA customers with an account, accompanying debit card, online account management and bill-paying services.

Golden Rule is one of the companies that provide both HSAs and HDHPs, although it doesn't offer coverage in all states. Participants earn 4% to 5% in an FDIC-insured savings account. But once their accumulated funds reach $2,000, they can invest any excess in a choice of eight no-load mutual funds. All the funds, including the Vanguard 500 Index and John Hancock Classic Value, have at least four-star Morningstar ratings. Clients are said to squirrel away an average of more than $2,400 a year.

Sterling HSA (www.sterlinghsa.com4), an independent HSA specialist, has one of the most liberal investment selections we found: You can invest your HSA money in any IRS-approved vehicle. You can even work through your own broker, or use a program Sterling has with discount brokerage Partnervest Securities. Sterling HSA's own savings account tops out at 4.855% for accounts with more than $10,000.

HSA Bank (www.hsabank.com5) has been in the medical-account market since 1997, and today is a unit of Connecticut-based Webster Bank. It rewards big savers with rates as high as 4.75% for accounts of $15,000 and above. Clients of HSA can buy and sell stocks through TD Ameritrade Corporate Services, with which it has set up a special program: Your money must first be deposited with HSA, then it goes to a money market account at Ameritrade, which you can use to buy stocks. Links to companies offering HDHPs are provided.

First American Bank (www.firstambank.com6) offers the Health Savings NOW account, whose interest rates range from 3% for under $1,000 to 4% for $5,000 and up. Account holders get free online banking and billpay, and a debit card.

The best place we found to search and compare HDHPs is eHealthInsurance (www.ehealthinsurance.com7). There, we researched health plans for a middle-aged couple in Minnesota (like my husband and I), and found 13 plans. Deductibles ranged from $2,400 (HealthPartners: $536.55 monthly premium; the insurer pays 80% of costs after the deductible is met and you are on the hook for 20%) to $10,000 (Blue Cross Blue Shield of Minnesota: $267.50 monthly premium; you pay nothing after deductible is met). You can click on a link to find eligible HSAs from other institutions.

Many HSA administrators offer typical online banking services -- and sometimes, lots of fees. Be sure to read up on any extra expenses before you choose an HSA.

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There's a lot to like about this reincarnation. News coverage is voluminous, originating at places like RealTimeTraders.com (www.realtimetraders.com11), BusinessWire (www.businesswire.com12) and the Associated Press (www.ap.org13). Both breaking headlines and full stories are posted. Commentary at this early stage is options-heavy, courtesy of Schaeffer's Investment Research (www.schaeffersresearch.com14). There's also a smattering of global-market news and index quotes.

U.S. indexes and markets, of course, are quoted, and individual stock coverage is solid. You can do basic technical analysis and read related Raging Bull message boards, view a company profile and SEC filings, and review insider and institutional trading. There's also good mutual-fund and ETF coverage. Yahoo!Finance it ain't, but it's good to see Quote.com back and off to a great re-start.

THE WEB IS FULL of stock picks from pros, but amateurs often claim they can do better. The Motley Fool (www.fool.com15) is offering them a chance to prove it with a new service launched October 3:

CAPS (caps.fool.com16) assesses investor predictions for more than 1,200 individual stocks over a variety of time periods relative to S&P 500 performance. It also monitors the forecasts of more than 125 Wall Street firms and analysts. The site has been in beta test for a year or so, and a number of participants, with track records of just a month or two, have been 100% accurate. A fun site, well-designed and packed with picks and the reasoning behind them. Better yet, it's free.

E-mail comments to editors@barrons.com

URL for this article:
http://online.barrons.com/article/SB1160...

Hyperlinks in this Article:
(1) http://www.irs.gov
(2) http://www.goldenrule.com
(3) http://www.exantebankhsa.com
(4) http://www.sterlinghsa.com
(5) http://www.hsabank.com
(6) http://www.firstambank.com
(7) http://www.ehealthinsurance.com
(8) http://www.lycos.com
(9) http://www.esignal.com
(10) http://www.quote.com
(11) http://www.realtimetraders.com
(12) http://www.businesswire.com
(13) http://www.ap.org
(14) http://www.schaeffersresearch.com
(15) http://www.fool.com
(16) http://caps.fool.com
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-- posted by SteveT

» allancoleman - Here's to Your Health

In response to Here's to Your Health posted by SteveT:

Another excellent post , SteveT . I have one of these HSAs and they are excellent . Some things to be aware of BEFORE you set one up is that NOT all states allow for a tax deduction on the amount of your HSA you've put in every year . those states are :

http://benefitslink.com/boards/index.php...

The maximum amount of deposit for this tax year of 2006 was $6,150.00 . The Federal government has not released the amount for tax year 2007 yet . This is ' pro - rated ' so you must begin your deposit the beginning of the year in order to get the maximum benefit . This is more of a ' tax credit ' instead of a deduction and comes off your taxes owed . An example of my own HSA deposit last year was i deposited $1,475.00 in November of 2005 because i did not become aware i qualified until that late into that tax year . My $1,475.00 deposit resulted in $363.00 deducted in my taxes owed for last year ( 2005 ) . Therefore my $1,475.00 deposit for last year COST me $1,112.00 and i now have $1,475.00 earning me taxfree interest available for my healthcare expenses going forward . When i finish my 2006 taxes next year , i can give more complete and detail figures for my full $6,150.00 deposit i put in in January of this year .

Another thing to be aware of is that you can NOT open an HSA after you qualify for Medicare at age 65 , however you can use the amount you have in your HSA for any expenses while on Medicare . My expense fee is $3.25 a month however i earn more than that each month on my account . I have a check book on this account that i can use for medical expenses during the year that aren't covered by my healthcare plan . Lastly , you MUST have a high - deductable medical care plan and your plan should be able to tell you if you qualify and help you set one up .

-- posted by allancoleman

» allancoleman - 2007 HSA data

The federal government has just released their inflation adjusted calculations for 2007 Health Savings Accounts contributions . For 2007 , the maximum contribution allowed for " self - only coverage " is $2,850 compared with $2,700 for this year ( 2006 ) . And the maximum contribution for " family coverage " for 2007 will be $5,650 comparied with $5,450 for this year ( 2006 ) .

Together with the " catch up " provision for those over 55 this year of $800 , that means my total HSA contribution allowed will be $6,450 for next year instead of the $6,150 i put in for this year ( 2006 )

For more information on how these work , see :

http://www.treas.gov/offices/public-affa...

The money put into these act like a " tax credit " on your income tax return and not like a tax deduction . Therefore the money deposited in your HSA comes off the taxes owed and not buried in your return as a deduction might be . For those of you considering these , they are NOT allowed after you reach Medicare age , however can be used after age 65 for Medicare expenses . So , for myself , I have an additional three years to build up my HSA account before I won't qualify anymore .

In addition , the contributions are " pro - rated " and you must begin your contribution in January of the year in order to qualify for the full year's contribution amount . In other words , you can NOT make a full contribution in November or December of a particular calendar tax year .

So those of you wanting to take advantage of these for next year , do your planning now . Remember most people don't plan to fail , they just fail to plan .

-- posted by allancoleman

» Happy_2 - 2007 HSA data

In response to 2007 HSA data posted by allancoleman:

Allan, According to the web site for HSA's that you provided, contributions to an HSA are deductible, but not tax credits?

-- posted by Happy_2

» allancoleman - 2007 HSA data

In response to 2007 HSA data posted by Happy_2:

You're probably right , Happy_2 , that although it's called a ' deduction ' , the amount of your HSA deposit will be on line #25 under " Health Savings Account . Attach Form 889 " on your 1040 and will then be substracted from your " Adjusted Gross Income " on line #37 .

In my own particular income tax return from done for 2005 , I had a reduced HSA deposit of $1,475 for tax year 2005 because I didn't get my deposit in until November of that tax year . My $1,475 HSA deposit in a taxfree account resulted in a reduction of $363 in my taxes paid for that year . In other words , my $1,475 put in a taxfree HSA cost me $1,112 for that year . I was able to make a full deposit for this tax year of $6,150 counting my ' catch up ' provision and will post my income tax results next year after I do my return with TurboTax .

-- posted by allancoleman

» Happy_2 - 2007 HSA data

In response to 2007 HSA data posted by allancoleman:

I checked with my carrier Blue Cross and they said the MSA account would cost me about $1,000 more per year with higher deductible. Not worth the trouble in my case.

-- posted by Happy_2

» allancoleman - 2007 HSA data

In response to 2007 HSA data posted by Happy_2:

The HSA does require a high deductable medical plan in order for you to qualify for it . I believe a MSA , Medical Savings Account , is a different animal .

In my own case because I picked a high deductable plan from my former employer because it was the least expensive and I don't normally go to a doctor on a regular basis or take prescribed medications , I qualified for the HSA . Presently have a debit card I haven't validated yet and check books to draw on the account amount that acts very similar to a IRA and can be used at any time in the future while it earns money taxfree forever .

And NOT all states honor the full federal tax benefits of HSAs , so one might want to check that out before you put money into one . A quick check of our archives here on this forum , it's only two pages , will give you an idea of what I'm talking about .

-- posted by allancoleman

» rice1 - 2007 HSA data

In response to 2007 HSA data posted by allancoleman:

MSA's are very simular but the contribution limits are more limited. With a HSA you AND/OR your employer can contribute up to 100% of your high deductable plan's deductable. I first learned of MSA's at this web site back in 1999 and opened mine in 2000.
I've since rolled my MSA to a HSA in order to take advantage of the higher contribution limits. What a great deal for those who can take advantage of this. My custodian http://hsabank.com has been great and their fees are among the lowest in the business.

Eric

-- posted by rice1

» allancoleman - 2007 HSA data

In response to 2007 HSA data posted by rice1:

Hello rice1 ,

My present HSA is with Aetna HSA . However i've considered rolling mine to Wells Fargo in the event I switch medical plans in the future . My fees are fixed at $3.25 a month or $39 a year . Presently earning 4.11% per annum . And as I'm sure you're well aware , all earnings in a HSA are taxfree . Because i'm retired and not employed and there is no regular paycheck from which to take my HSA deduction , I make one deposit in January of each calendar year and deposit the maximum allowable .

Haven't seen you post here at Suite101 , Eric . Welcome and hope you'll contribute more often .

-- posted by allancoleman

» rice1 - 2007 HSA data

In response to 2007 HSA data posted by allancoleman:

Thanks Allan. If you do roll your account be sure to check out the site I posted. Their fees are less and they pay more for your deposit. Just curious, how do you qualify for the maximun deduction? It is my understanding that the maximum contribution is limited to your deductable to a maximun of $5650 for a family. The catch up of $800 is in addition to. Is your deductable that high?

Eric

-- posted by rice1