MONEY: A HEALTH-CARE WINDFALL

BY LINDA STERN

Rich Phillips has a wife, three kids and a need for health insurance that won't bust his budget. When the Austin, Texas, consultant left a salaried job last fall to start his own company, Phillips, 34, was getting quotes of about $1,000 a month to replace the policy offered by his former employer. Then he discovered Health Savings Accounts (HSAs), a new type of low-cost, high-deductible, big-benefit health-insurance policy. Now he pays $350 a month in premiums and tucks away $300 a month into a tax- deductible savings account. "This is a great plan, the future of health care," says Phillips.

HSAs aren't those familiar accounts that allow you to stash a pretax $2,000 that you must spend in the same year; these policies are shiny and new. They were a sleeper provision of last year's Medicare bill that became legal on Jan. 1, before most insurance companies were ready to roll them out. But by October, some 80 insurers will be offering HSAs, says Dan Perrin, executive director of the HSA Coalition, a lobbying group. By the end of next year, six of 10 large companies will have an HSA choice for their workers, according to Hewitt Associates.

Designed to please everyone, HSAs pair a high-deductible catastrophic health plan with an individually controlled tax-deductible savings plan. The high deductibles (at least $1,000 for individuals, $2,000 for families) make the monthly premiums affordable.

But they also let consumers with solid finances stash cash for future medical costs. HSA holders can get a tax deduction of up to $2,600 for individuals and $5,150 for families. That money is tax-free if it's used to pay doctor bills or even things ranging from aspirin to acupuncture, long-term-care premiums, eyeglasses and braces for the kids. Or ... it doesn't have to be used at all. Savers can accumulate money in their HSAs for decades and then use it for retirement. If they use them for medical care, ever, they are tax-free. "It's like a super IRA," says Wil Heupel, an Edina, Minn., financial adviser.

Shopping around is important: the plans differ by provider and state. Here's how to hook up your own HSA:

^ Start with the health insurance. The best tax breaks in the world won't do you any good if your policy won't pay up when you're sick. Call your current insurer and find out whether your policy is HSA compatible, or whether you can switch seamlessly to an HSA policy. Comparison-shop other plans at eHealthinsurance.com. Once you've found one or two that you like, call your doctor and ask for an opinion.

^ Plan your saving strategy. Most insurers are offering paired savings and insurance accounts, so your premium and savings checks go to the same place. They typically send a checkbook that you can use to draw down the savings account as you need it. Compare fees, ease of access to your money and the interest rates. Many of these accounts are structured for people who intend to use their savings every year to cover their medical expenses and don't pay high rates.

^ Ramp up the investment. If you can afford to stash tax-deductible money in your HSA, leave it there for years and shop for the savings account separately. Start at HSAInsider.com, which lists all the banks, brokers and insurance companies offering HSA savings plans. Look for ones that offer good investment choices and keep their fees low. Some providers to consider are hsaadministrators.com, which offers Fidelity funds, and hsabank.com, which offers full brokerage access to stocks and mutual funds for investment- minded HSA savers. Shop carefully, and you'll be feeling better in no time.

MONEY: A HEALTH-CARE WINDFALL | News