Don't Mess With Taxes

I am happy to report that after almost two weeks of fighting what one doctor called "just a cold" but what I knew was worse, I am feeling better.

You may remember my whine complaint that my doctor dismissed my ailment. A quick update. That wasn't my regular doctor; it was another one in the practice who could see me sooner since my usual physician was booked up. On Friday, however, I demanded to be worked into my regular M.D.'s schedule.

After a few days of antibiotics and cough syrup, I'm on the road to recovery. I appreciate, on a philosophical basis, the first doctor not wanting to dish out unnecessary medications. But I'm no Rush Limbaugh clone out there doctor shopping for pain killers. I was sick! I needed an Rx! And I will never go to any doctor other than my regular one from now on.

The good news, in addition to my improving condition, is that I have health insurance that allowed me to get into a doctor at minimal cost. The bad news is that my cost was twice what it should have been, since I had to make two office visits and fork over two $15 co-pays.

The hubby and I pay sizable premiums each month for the benefit of visiting our doctors when we want with a relatively small upfront cost. A lot of folks, however, opt for plans that cost less in the premium department, but could end up, according to a recent report, costing substantially more in the long run.

High deductibles higher costs: According to a New York Times story, The Many Hidden Costs of High-Deductible Health Insurance, a recent survey by Fidelity Investments revealed that almost half of employees who have high-deductible health plans at various companies had chosen not to seek medical care for minor ailments to avoid paying the out-of-pocket expenses.

High-deductible coverage, which is usually accompanied by an employee Health Savings Account (HSA), are seen by some policy experts as the way to revamp our health care system.

A high-deductible health plan, as the name suggests, means you take the chance that you'll only need to use it to cover a major illness, the treatment of which exceeds your deductible amount. The monthly premiums for such coverage is usually much lower than traditional medical plans.

The flip side is that you'll pay out of pocket for minor ailments, like my sinus infection/nagging cold.

HSA tax breaks: You can, however, get some help covering those costs via an HSA. You put money into this account to pay your high-deductible plan expenses until the insurance kicks in.

You also get some tax assistance with your HSA. The money you contribute to an HSA is deductible on Form 1040. In addition, the plan's earnings accumulate tax free and roll over year to year. 

As with everything, there are pros and cons to HSAs and high-deductible plans. As the Fidelity survey indicates, one of the cons is that small health problems left untreated can become big medical issues. "This is just one of the many high-deductible pitfalls consumers need to watch out for," Kathleen Stoll, director of health policy at the health care advocacy group Families USA, told the Times.

Also, notes the paper, people who can best take advantage of the HSA tax break are those who can afford to contribute the maximum but do not spend it all on health care. "The idea is that the money accumulates over the years, providing a cushion down the road when health problems or the need for long-term care arise."

Plus, lower-income families who might be more inclined to opt for high-deductible plans usually don't  benefit from HSA tax breaks the way middle- and high-income earners do.

New HSA contribution limits: The IRS has announced the 2010 inflation-adjusted amounts for HSAs.

The annual limitation for next year on deductions for an individual with self-only coverage under a high-deductible health plan is $3,050, up from $3,000 in 2009. The annual limitation on deductions for an individual with family coverage is $6,150, up from $5,950 this year.

As for what qualifies as a high-deductible health plan, the IRS says that next year it's a plan with an annual deductible of at least $1,200 for self-only coverage or $2,400 for family coverage. The annual out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) must not exceed $5,950 for self-only coverage or $11,900 for family coverage.

If you're considering a high-deductible plan, also keep in mind that recent discussion of U.S. health care overhaul might mean changes to these accounts.

As I noted More health care tax options, one Senate Finance Committee proposal would restrict HSA contributions to the lesser of the individual's deductible amount or the statutory limit. A second proposed option would increase the penalty, from 10 percent to 20 percent, for withdrawing money from an HSA for non-medical expenses. And a third discussion item  would require certification that HSA withdrawals were made for medical expenses.

Fewer workplace plans: Meanwhile, more folks might be needing HSAs because the number of companies offering health insurance to their workers continues to drop.

The Wall Street Journal reports that accelerating health-care premiums and sharp revenue shortfalls due to the recession are forcing some small companies to choose between dropping health insurance or laying off workers.

The relatively good news for workers is that jobs are winning. But that means jobs without health care.

A recent survey by the trade group National Small Business Association found that about 10 percent of small businesses are considering eliminating coverage over the next year, up from 3 percent in 2005. Another survey, this one by Hewitt Associates, found that 19 percent of all companies plan to stop providing health-care benefits in the next three to five years

Those numbers underscore recent trends. Last year, just 38 percent of small businesses provided health insurance, compared to 41 percent in 2007 and 61 percent in 1993.

What's your health care situation? Does your employer provide medical insurance options? Do you have an HSA? If so, how does it work for you? Do you contribute the annual deductible maximum? Do you put off visiting your doctor to save HSA money?