Income tax free has a great sound to it! Anytime you hear of a plan that allows consumers to pay for qualified medical expenses with pre-tax dollars, it needs to be considered as part of your overall personal financial savings goals.
Health Savings Account or “HSAs” are tax-favored savings accounts that are usually set up with eligible high-deductible health insurance plans, through your employer, bank or insurance agent. They are a good choice for people wanting to save on their health insurance costs by combining lower cost, higher deductible insurance plan with this tax-favored savings account.
Simple concept; the money you save on choosing a higher deductable health insurance plan can be deposited pre-tax into your account and withdrawn anytime in the future for qualified medical expenses. There are limits to what you can contribute each year and withdrawals can be made at anytime for non-medical purposes; you will be taxed as normal income and subject to a 10% penalty if done before you are 65 years old. Any HSA funds you do not use each year remain in the account and earn interest.
Should you leave your present job – by layoff, firing or resignation – and had health insurance as an employee benefit; you may be eligible to continue your coverage. COBRA, short for Consolidated Omnibus Budget Reconciliation Act, is a Federal Law and was enacted in 1985.
Employers with 20 or more employees and offer health plans as a benefit are required to offer continuous medical plan coverage for you and your family for 18 months from the date you leave.
You must notify your employer within 60 days after you leave and here is the expensive part – you must pay the entire premium plus a 2% fee to continue your health insurance coverage. You can wait to the 59th day if you think you will find a new job quickly and your new employment will offer a no waiting period on health coverage. If you have a pre-existing condition, sign-up for COBRA immediately – continuous coverage is very important to any new health insurance coverage you may be applying for.
If COBRA is not available to you, check and see if you can convert your group policy to an individual or family plan.
A big concern for people changing jobs and their health insurance coverage is pre-existing medical conditions. Relax a little; there are laws that assure continued health insurance coverage for employees and their families. Under the Health Insurance Portability and Accountability Act (HIPAA), health insurers could impose only one 12 month waiting period for any preexisting condition treated or diagnosed in the previous six months. Your prior health insurance coverage will be credited toward the preexisting condition exclusion period as long as you have maintained continuous coverage without a break of more than 62 days.
If you have never been recently covered by a health insurance plan, you may be subject to a 12 month waiting period on any pre-existing medical condition. On the other hand, if you have been continuously covered by a health insurance plan for two years or more, your new plan cannot impose another pre-existing condition exclusion period.
