As of 8/07, an employee plan with HSA option won't work in S. C. because an HSA vehicle does not yet exist in S. C. Many would advise that insurance coverage ought to insure against disasters and not so much against some annual amount that a family could bear from their personal budget. From the monthly premium our group pays to SCMA for your health insurance, we could, instead, pay for an HSA (previously known as MSA [medical savings account])..."Health Savings Account". Part of that payment would go to paying your SCMA annual premiums for a (1) a high-deductible health insurance plan & another part payed as an annual PAL contribution (2)  into a tax-protected, fully portable, IRA-type medical-costs savings account in your name. Any unspent money in the (2) savings account rolls forward into the next year; and new contributions (monthly/quarterly/annual) are made on top of any of those unspent funds. [info links] [Nov. 2004 AMA file about HSA]

However, there is as yet not a significant premium advantage as an employee benefit if your employer allows a choice of types of health insurance and does not limit employer's contribution amount per year. In that case, it may be to your best advantage to have as liberal-coverage, low-deductible indemnity insurance as you can get. That avoids out-of-pocket expense and the time & effort to file claims that comes with the HSA. On the other hand, this can be a good vehicle for parents or other support factors to help those who have income but do not yet see a way to begin to pay for their health insurance. In essence the support factor pays for catastrophic coverage and the person being helped can set up monthly payments for expenses in the deductible range.

History: Congress wanted to help the self-employed and small businesses provide more health coverage via a new idea with an incentive: an employee's personally-owned savings account. The trial program started in 1995, was to enroll a maximum of 300,000 MSA plans, and was to close to new enrollees in 2000 for evaluation. As of 5/2003, this MSA method of insuring health costs was still open for new enrollees. The 11/03 Medicare act included more on MSAs. But an act passed that created HSAs which have superceded MSAs (prior MSAs can be left as is or rolled over into an HSA).

(1) The "health insurance" component (using SCMA product example):

1. Cumulative deductible is $2250 per single or $4500 per family per year...(ordinary health plans tend to use a deductible for each person covered)...the sponsoring organization (such as SCMA) sets the deductibles.

2. "In-network" providers: the next $5000 of cumulative allowed claims from participating providers is paid 80% by insurance & 20% by you (either out-of-pocket or from your HSA/MSA "savings account").

3. "In-network" providers: any greater amount of cumulative allowed claims than $5000 from participating providers is paid 100% by insurance.

4. So, if you chose the $4500 deductible, your maximum out-of-pocket risk is $5500 cumulative (if you are careful to utilize only allowable services from participating providers) [$4500 plus 20% of $5000 = $5500].

5. When services are by "out of network" providers: allowable expenses related to out-of-network providers apply first to a new & separate deductible account and PCN pays 80% of whatever it defines as U&C (usual and customary charges per CPT4 code by each provider).

6. Key possible danger: In attempting to guard against out-of-pocket expenses, you may end up delaying important screening exams!

7. Key pain in the neck: any potentially-deductible service encountered/provided for you should be filed (forms filled out & forms & documentation submitted by you) with the insurance company. If approved by the insurance company, the expense will be applied to your deductible whether or not you choose to be reimbursed from the below HSA/MSA savings account (in order to have a chance to be counted towards your deductible, the expense must be filed with the insurance company). You have 12 months from the date of service to file claims to PCN for reimbursement under the health insurance. Unless something happens to cause enough expense that the deductible may be used it, then the time & trouble to file is probably not worth it.

8. If you'd prefer, you can pay the medical expenses within the deductible zone out of your own pocket with other health-plan-unrelated after-tax dollars & leave the money in the HSA savings to grow tax sheltered. It would be smart to carefully collect receipts and other evidence of all IRS Schedule A medical deductions & keep in a folder; then, if an event happens that would "fill up" the deductible, promptly file all of these with the insuror to the extent that it is to your advantage.

(2) The tax-protected savings component:

1. You open/have an account holding your employing company's contributions ($4500/year maximum) in your behalf at such as MSA Bank (watch out for low-balance charge by bank).

2. The employee owns the account (a type of IRA) and can transport it if he/she leaves employment.

3. Any item qualifying as an IRS schedule A medical deduction can be paid for from this account using tax-free money...not limited by any percentage of a person's high income.

4. If you'd prefer, you can pay the medical expenses within the deductible zone out of your own pocket with other after-tax dollars & leave the money in the HSA/MSA savings to grow tax sheltered. It would be smart to carefully collect receipts and other evidence of all IRS Schedule A medical deductions & keep in a folder; then, if an event happens that would "fill up" the deductible, file all of these with the insuror to the extent that it is to your advantage.

5. If money should build up in the account beyond a certain threshold, MSA Bank allows (or some other bank may also) tax-sheltered investment in several of their vehicles.

6. Qualified medical payments out of the account are always as tax-free money, no matter how old the account owner is.

7. Key pain in the neck: withdrawals are never questioned by the bank, but it issues a 1099 form on you to the IRS each year there are withdrawals. Then, medical expenses must be itemized on your personal income tax form so as to match the 1099.

8. Before owner is age 65, any net unqualified money withdrawn is taxed and a 15% penalty is assessed.

9. After age 65, non-medical (non-qualified) withdrawals are taxed at your then-current personal tax rate & without penalty.

10. At age 65, the account becomes like a regular IRA; and, at the owners death, at any age, there will have been a beneficiary designation on the account.

  (posted 28 May 2003; latest update/addition 29 August 2007)