How to save for the unforeseen

When Sean Boyd pays his $4,000 health insurance deductible, or a $50 dental bill, he withdraws the money from his health savings account. His money is not taxed going into the account and not taxed going out, as long as he uses it for medical expenses.

If Boyd doesn't use up all the money in the account, he can withdraw it for retirement. For example, if he continues contributing $4,000 annually to an interest-bearing health savings account, and doesn't withdraw any funds, he can retire at 65 with as much as $150,000 in the account.

But he'll probably use the money. Boyd is a skier and a jogger. Accidents happen. When they do, the 34-year-old has control of his health-care money.

"The plan is the best thing you can do, bar none," Boyd said. "If you are in your 20s and 30s, by all means you should be in it. Even for those who are 40 and 50 years old, it makes more sense financially."

And he's not the only one who thinks so. A Carson City insurance broker said the number of clients who have invested in the health savings account has increased more than 50 percent in the last four years.

One of those clients is Signature Galleries in Zephyr Cove. It switched this month to an insurance plan with a health savings account option for its employees. This new plan allows the company to cover twice as many employees without increasing the cost, said Boyd, who is Signature's chief financial officer. The company has about 100 employees in its four locations.

"It makes you a more frugal consumer," he said. "For example, if you know that you have to pay out of pocket, you won't go to the emergency room when you have a sniffle. You'll hold off and go to the urgent care the next day, or the doctor, rather than pay the expensive ER bills."

Participants who stay healthy are rewarded with a growing medical savings account, he said. Those who have a medical catastrophe, for Boyd that could mean blowing his knee out while skiing, will only pay the premium. He won't get overburdened by co-pays for multiple trips to the physical therapist.

The majority of his Lake Tahoe employees are women. Since Signature Galleries opted to have maternity coverage, an employee who has a baby this year will only be paying a maximum of $4,000, or $2,000 out of pocket if she is single.

How do I get a health savings account?

First you need to have a high-deductible health plan, which is an IRS requirement, said Julie Ann Utley, president of Jewels Benefits Inc., and a Carson City insurance broker. That means a 2005 insurance deductible ranging from $1,000-$5,100 for an individual and as high as $10,200 for a family.

She advises those interested in the account to shop for the best one, if their employer doesn't offer it as part of a package. Individuals don't have to shy away from the health savings account.

"Individual health insurance plans are less expensive than group insurance most of the time because they are fully underwritten by the carrier," she said. "Health savings accounts are less expensive than traditional health insurance plans."

Some clients prefer to sign up for a health savings account with their bank. US Bank offers the account. Bank of America offers it for commercial clients and health plan providers, not individual consumers. At least not yet. A spokeswoman said that will likely change by the end of the year.

The participant can choose an interest-bearing account or invest part or all of the balance in the stock market.

"Different companies offer different interest rates and fees," Utley said. "Think of it as a regular savings account or checking account. When you shop for a savings account, you shop for the best fees."

The health savings account differs from the flexible spending account, which requires participants to chose at the start of the year the amount they anticipate needing. But they lose whatever they don't use by the end of the year.

In a health savings account, the amount rolls over year after year. If anything is left over by the time you reach 65, you can use it for retirement, according to IRS rules.

"You can vary the amount you put in, but the goal would be to fully fund up to the maximum for the year," Utley said.

And the maximum for the year is set by the IRS, she said. It allows each participant to contribute the amount of their health insurance annual deductible, or up to $2,700 for a single person and up to $5,450 for a family.

"I'm allowed to invest my deductible, so if and when I have a medical expense, I'm paying for it with pre-tax money instead of post-tax money," she said.

If so, why isn't everyone doing it?

The account is confusing to those who are used to insurance in the traditional way, Utley said. And that's why she spends a lot of time explaining it.

At a recent meeting for area business leaders, Carson Tahoe Regional Medical Center Chief Executive Officer and President Ed Epperson said health savings accounts will be important in the future of medical care.

A tax benefit

If you have a propensity against saving - and you wouldn't be alone, the national savings rate is near zero - the health savings account would be a challenge. It bases all of its benefits on how much you can sock away per month.

However much you do manage to put away is a tax deduction, even if you don't itemize your return, said John Bullis, an accountant in Carson City.

"If you put $500 into it, you get to deduct $500," he said. "And let's suppose your employer wants to put into your health savings account, it's also a deduction for the employer. The key thing is that it's a deduction going in and not taxable coming out, if it's for medical expenses."

But not to anyone over 65. They're not eligible. This plan is for young, healthy people said Bullis. He doesn't have one because he's over 65.

"With this they can build up an account that will pay for medical expense when they are 60 and above," he said.

-- Contact reporter Becky Bosshart at bbosshart@nevadaappeal.com or 881-1212.