Sunday, April 5, 2009

Nanny Tax Season

Traditional Health Insurance Versus a Health Savings Account

Some of the advantages to a Health Savings Account (HSA) are that the contributions to an HSA are tax deferred, the interest it accumulates is tax deferred, and when funds are withdrawn for qualified medical expenses, no taxes are due on those withdrawals. So, there is no better time to learn about HSAs than at tax time.

Adam Hyers of Hyers & Associates explains the difference between traditional health insurance and an HSA.

What is a Health Savings Account (HSA)?

The easiest way to explain the difference between health insurance and HSAs may be to clarify what HSAs are not. They are not health insurance plans. Rather, they operate much like savings accounts setup at a bank.

And they are always coupled with a high deductible health insurance plan. That is to say, one could purchase high deductible health insurance coverage with or without an HSA attached to the plan. An HSA is exactly that - an account established to save money for future health expenses.

The idea behind HSAs is fairly straightforward. Owners deposit funds into their accounts to be used later for qualified health expenses. Funds can be used for a variety of expenses - including (but not limited to) visits to the doctor, prescriptions and/or meeting the deductible.

Advantages of HSA Compatible Plans

Generally, HSAs will be less expensive than traditional insurance plans. The reason is simply that plan deductibles are higher. Therefore, the insurance company underwriting the plan will not have to immediately cover small, incidental claims. The owner would use funds from the HSA for many of the incidentals - like doctor visits, prescriptions, etc.

In addition, the attached savings account has significant tax advantages versus traditional health plans. Contributions into an HSA are tax deferred and the interest accumulates tax deferred - much like contributions to an IRA. However, when funds are withdrawn for qualified medical expenses, no taxes are due on those withdrawals. In this way, HSAs provide tax advantages to the consumer twice - once when the money is deposited and again when it is withdrawn.

Who Should Consider an HSA Compatible Plan?

Healthy individuals who infrequently visit the doctor are good candidates. Individuals and families on a tight budget, but in need of affordable coverage could also consider an HSA plan. These consumers can pay smaller, minor health costs out of the HSA, but should they have a significant claim, the health insurance coupled with the plan is available once the deductible has been met.

Many employer sponsored group plans are already switching to HSA's to lower their health care premium bills. The rising cost of health care is forcing many companies and small business groups to change insurance plans in order to save money. An HSA compatible plan can be a fair compromise for the employee and the employer. Some employer groups will make contributions to the HSA to encourage employees to make the change.

Who Should Consider Traditional Insurance?

Consumers who want lower deductibles and more in immediate benefits tend to purchase traditional plans. In the insurance industry, this concept is called "first dollar benefit." These are benefits the consumer receives without having to meet a deductible or co-insurance provisions. Examples of first dollar benefits include annual physicals, visits to a specialist or non-specialist, OB/GYN visits and prescription coverage. While newer HSA plans are offering more in first dollar benefits, usually traditional health insurance will provide the most in immediate benefits.

Traditional coverage can be more advantageous for families and/or middle aged or older consumers. These groups may be more likely to have several claims against their policies. They may desire more in immediate benefits. Additionally, they may simply have the resources available to afford more expensive policies.

In summary, there are many health insurance plans available to the individual, family and business group. Choosing the right plan will often times involve balancing cost with benefits. HSA compatible plans can be an affordable alternative to a traditional, lower deductible plan.

Consumers, when working with an experienced independent agent, can usually find a suitable plan that fits their needs.

The author of this article, A.M. Hyers has been working in the insurance and investment industry for over ten years. He owns and operates Hyers & Associates, Inc. an independent insurance agency doing business in Arizona, Florida, Georgia, Illinois, Indiana, Missouri, Ohio, and Pennsylvania. His agency offers insurance products in the individual, family, and small business group marketplace. They use the leading national insurance carriers to quote health insurance, health savings accounts, dental, and vision plans. Other lines of insurance offered include life insurance, disability insurance, and long term care insurance. They use several carriers to quote Medicare supplement plans and Medicare Part D coverage for seniors. Additionally, the independent agents of Hyers & Associates Inc. offer fixed, indexed, and immediate annuity policies for individual and group retirement plans. Health savings account and health insurance quotes for those in Arizona, Florida, Georgia, Illinois, Indiana, Missouri, Ohio, and Pennsylvania. Visit them at:

If you are a nanny would you consider a Health Savings Account instead of traditional health insurance as a benefit at your job?


Anonymous said...

I would consider an HSA. Absolutely. I wonder why the nanny agency or parents didn't mention it to me? Sounds easier actually and cheaper and I think it's a great idea. The parents said they will add health insurance at my annual raise.

I think I will mention it as an idea for my annual raise. Could the parents put the $50 dollar raise (a dollar an hour raise) in the HSA? Sounds like a maybe to other people but I spend a fortune on chronic illness I have. I pay $210 per visit to a doctor I see every two months and hundreds on prescriptions. This would be good I think.
Nanny Annie, New Canaan, Connecticut

Anonymous said...

I appreciate the info since I have never heard of an HSA before. Since I live in Rolling Hills, California and not in one of the states listed for Hyers & Assoc. would I contact an insurance seller or an accountant for more information on HSAs?

Best Nanny Newsletter said...

For Anonymous Commenter above from California:

Currently, California does not conform to the federal law.

Health Savings Accounts (HSA) offer deductions on FEDERAL income tax.

Most states also offer the same deductions on state income taxes. However, since HSAs were set up as a federal program, the individual states can choose to comply with the federal guidelines concerning tax treatment of HSAs, or establish their own rules.

California, Alabama, New Jersey, and Wisconsin still must pass state legislations before Health Savings Accounts will receive a tax benefit at the state level.

On February 9, California State Senator Abel Maldonado, Santa Maria (Santa Barbara County), reintroduced a bill in the California Legislature that would conform California tax law to the federal law that created health care savings accounts.

Health Savings Accounts, also known as HSAs, are savings accounts where people who have a qualifying high-deductible health insurance plan can place tax-deductible money, that can then be use to pay for medical expenses at anytime in the future, tax free. In most states the money deposited into a Health Savings Account is also deductible on state income taxes.

Currently, California does not conform to the federal law. Californians who open HSAs will get no state-tax benefits. They will, however, have big record-keeping headaches, since they will have state income tax on the initial deposit, but none on the gain, yet no Federal income tax on the initial deposit or gain.

Maldonado introduced a tax-conformity bill last year, when he was in the Assembly, but it went nowhere.

The new bill, SB173, also adds a tax credit for employers who have not offered health insurance in the past but begin offering health savings accounts.

I hope this is helpful.

Anonymous said...

It is Sherrie from Rolling Hills that commented earlier. Thanks so much for the added information about it being a federal program and California is trying to follow the same deductions at the state level. You are so helpful as usual.
Thank you!!

Anonymous said...

This is very interesting. I get half my health insurance paid by my employers but this sounds very interesting. I work and live in CT so it shouldn't be a problem for me to start since my employers already contribute to my health coverage. I'll forward it along to them. Thanks!
Franny, Westport, CT

Anonymous said...

I just don't think this is a good time to be demanding benefits from employers.

Ed Harris said...

HSAs are a terrific option for Ohioans. As the owner of Ohio's leading resource for health insurance plans ( I'm very impressed at the wide variety of Ohio HSAs.

I have an Anthem plan...but, of course...your plan may be issued through a different carrier, based on your individual needs.

savings accounts said...

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. More info on high interest savings account.