Illinois Health Savings Account (HSA)
Illinois Health Savings Accounts (HSA’s) can be a great type of health insurance plan for many IL residents. Perhaps you have read a little bit here and there about HSA’s in recent years but really do not understand how they work in practicality. Let’s take a look at how an HSA really functions so that you can decide if having an IL Health Savings Account will meet your health insurance needs.
First of all, a Health Savings Account is comprised of two components: the insurance component and the savings account component.
1 The Insurance Component -The insurance component is a comprehensive major medical plan with a deductible (generally a higher deductible as there are certain floors on how low of a deductible a plan can have as set by the IRS in order to maintain the plan’s special HSA qualified tax status), no coinsurance, and no copays.
The way that this works is that the insured will pay out of pocket for expenses starting at dollar 1 until the deductible is met. After the deductible is met for the calendar year then the Illinois health insurance company covers 100% of all covered expenses for the rest of the year. In other words, the maximum out of pocket cost for most Illinois Health Savings Accounts will be equal to the deductible.
For example, you are a single individual with an Illinois HSA that has a deductible of $2,850. Let’s say that you purchase the plan in January. In March you develop a cold and go to the doctor for an office visit. The doctor’s visit normally would cost $150 for someone who does not have insurance. Your insurance company negotiates the rate down to $85 because of the agreement that they have worked out with that particular physician and the pricing power that they can offer because of all of the Illinois residents on their health insurance plan (a definite advantage to choosing a large established Illinois insurance company like a Golden Rule/United Healthcare, Blue Cross Blue Shield of IL, UniCare, etc.). You pay the $85 and it goes towards your deductible for the year. You now have $2,765 of your deductible left to satisfy for the year ($2,850 - $85).
In August you get a prescription filled for heartburn. The prescription costs $50 without insurance but again the insurance company negotiates the rate for you down to $15 and that is all that you pay. After you pay the $15 for the prescription and that amount goes towards your deductible then you now have $2,700 of your deductible left to satisfy for the year ($2,850 - $85 - $15).
In November you trip over your dog and break your leg. After a trip to emergency room, a visit or two to the doctor, some various nurses and facilities fees, and a short stay in the hospital the total bill for someone without insurance comes to $33,000. Again, your insurance company negotiates the rate down to a much lower $18,000. Much lower but still it is a good thing that you have a comprehensive Illinois major medical plan because all that you pay of the $18,000 is $2,700 (what is left of your deductible to satisfy for the year). After you pay the $2,700 the insurance company pays the rest of the $18,000 bill and also will pay all medical costs incurred for the rest of the calendar year.
2 The Savings Account Component – the savings account component is separate from the insurance component and allows for some very attractive tax benefits. Money that is contributed into the savings account is allowed as an above the line deduction on the front of your 1040 Federal Income Tax Return (up to certain IRS limits – the amount is indexed for inflation and for tax year 2007 the amount is $2,850 for a single taxpayer and $5,650 for a married filing jointly taxpayer. This amount is also no subject to any income phaseouts so the higher your tax bracket the more of a tax savings you will realize). Money can be contributed into the Illinois Health Savings Account monthly, annually, quarterly, in a lump sum, and even as a distribution from an IRA.
Money that is in the savings account grows tax free and is able to be withdrawn tax free as long as the money is used to pay for qualified medical expenses (the definition of qualified medical expenses is quite broad and can be used for bandages, medicines, doctor’s fees, etc.). Money that is withdrawn for something that is not a qualified medical expense will incur a 10% penalty fee by the IRS. However, once you reach age 65 then the money can be withdrawn for any reason without penalty. This money in the savings account rolls over from year to year (there is no requirement to use up the money by a certain deadline much like there is with an Illinois employer provided Flexible Spending Account [FSA] that has an annual deadline).
Illinois Health Savings Accounts can be a great way to Illinois residents to have a health insurance plan with comprehensive major medical coverage, lower monthly premiums than traditional copay type health plans, and tax benefits to boot. There are many top notch IL health insurance companies that offer HSA plans to Illinois insurance shoppers. Blue Cross Blue Shield of IL, UniCare, Golden Rule United Healthcare, Aetna, Celtic, Humana, Cigna, and others could be a great place to start exploring IL HSA options. Take a few moments and compare all of the top health insurance companies that offer coverage in your home zip code. Use our free quote finder and in less time than it takes to brush your teeth you can compare free personalized Illinois health insurance quotes!