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Health plans  

These new plans can save you money, but you need to know what you're doing.

Sorting out your medical insurance options

Many of these plans come with an ATM-like debit card or a checkbook. You use that money for co-payments, prescriptions or any other out-of-pocket medical expense. Once you hit the deductible, your regular insurance takes over, except for any other co-payments or noncovered medical expenses. There are IRS limits on how much can go into an HSA. For 2006, it is up to $2,700 for an individual and up to $5,450 for a family. People 55 or older may add an additional $700.

Schreier says that an "HSA gives you money for the future. It is a hard sell because it's part of a high deductible policy and there are higher out-of-pocket costs. It really favors those in good health who can afford a higher deductible: the healthy and wealthy."

Collier points out that it especially good for the young. "Your 20-year-olds don't use their health insurance. They're young and healthy, so the money builds up over the years. If I were 20, I'd jump right into an HSA."

It is also a good way to reduce your taxable income since that money is not counted as taxable income.

The biggest advantage of an HSA is that any money you do not use in one year -- whether you put it in or your employer did -- is yours to keep, even if you switch jobs. The money earns tax-free interest and, at age 65, or if the plan holder dies or is disabled, the money can be distributed without penalty to the beneficiaries of your estate. You can even withdraw all or some of it for nonhealth reasons, but that is penalized.

"There's a 10 percent immediate excise tax on the money you take out, and that money then becomes fully taxable," Schreier explains. At a certain point, depending on the plan and the way you structure it, the plan can convert into an annuity and send you a regular check.

"It is less beneficial for people on maintenance programs, or those with a lot of kids, or where there is a lot of sickness or chronic care," he says.

HRAs, health reimbursement accounts
A company puts money into every covered employee's health reimbursement account every year, and the employees can use that money for health-related expenses that are not covered by the company health insurance plan. This could be for co-payments, prescriptions, an extra pair of glasses or whatever the company decides is appropriate.

You pay the medical expenses yourself, first and then submit the receipts to get reimbursed. Each company designs its own policies and rules for HRA use, which usually include a deducible that the employee has to reach before being able to claim any reimbursements.

No employee money goes into an HRA. When an employee leaves, any unused money stays with the company. There is no automatic rollover in an HRA. If you do not use all the money that is your account this year the company does not have to leave it there for you to use next year. Some companies will allow individual accounts to build, but most of them start a new account every year.

As a result, many employees look at what's left in their accounts as the year comes to a close and use that money for extra glasses, maybe even teeth whitening, or anything else that the company policy allows to use up the funds.

Some employees "clean out" their HRAs when they know they are going to be leaving the company, getting an extra pair or two of glasses, for example. Since it is their money to use according to company guidelines, they do not have to give any of it back.

Collier points out a common way companies use HRAs to reduce their overall health insurance premiums.

Let's say a company that had a $250 deductible health insurance policy on each employee raised it to a $1,000 deductible in order to lower the company's overall premium costs.

Next: "Companies do want to keep their employees ... happy."
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 RESOURCES
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