A LOT OF WORK, BUT A LOT TO LIKE [Albuquerque Journal, N.M.]

July 21--BEFORE YOU KNOW IT -- Jan. 1 to be precise -- just about everyone will be required to carry health insurance.

Most individuals will face new taxes if they don't buy coverage. Small businesses that are not required to offer coverage will be offered incentives to start providing health insurance to employees.

Some health-insurance shoppers might do well to consider a complicated, confusing but tax-friendly approach to coverage known as a "health savings account."

People choose health savings accounts for the financial benefits they provide, benefits that don't come with conventional health insurance.

HSAs allow you to accumulate funds while avoiding or deferring some taxes. They are used in conjunction with high-deductible health-insurance policies, which come with lower premiums than other types of health insurance.

Devon Day, an Albuquerque financial adviser, said some small-employer groups see insurance premiums that are 30 percent to 40 percent lower when they go the HSA route.

The idea is that you will use your own tax-advantaged funds to pay for much of your routine health care. When you get really sick or badly injured, your insurance policy kicks in to cover the big expenses.

As a matter of policy, the HSAs, authorized by Congress in 2003, were intended to force participating consumers to be smarter about health care spending and less inclined to run to the doctor or emergency room for every little problem. Congress hoped that HSAs would help control medical inflation.

"What's important about HSAs is they do what insurance is supposed to do, which is to limit your exposure to cost," Day said.

"Business owners themselves can really benefit. It provides another source of tax deduction for deposits."

This is how HSAs work:

You can deduct from your personal income tax the amount of money you deposit in a health savings account, which are offered by banks and other financial institutions.

The growth in the account's value is tax free. The money you withdraw to pay for health expenses is not subject to income tax.

You can withdraw money for other uses as well. If you are 65 or older, you pay tax on the withdrawn funds not used for health care. If you are younger, you pay taxes and a 20 percent penalty on the amount you withdraw for nonmedical expenses.

Like an Individual Retirement Account, the money in the HSA is yours. You can accumulate as much in the account as you wish, unlike flexible spending accounts, which must be exhausted each year or be subject to taxation. Contribution limits

This year, federal tax rules allow individuals to contribute up to $3,250 annually to an HSA. Families can contribute up to $6,450. Your employer also may contribute to your HSA, but the annual limits on deposits still

apply.

To qualify for an HSA, you must buy insurance, or your employer must buy it for you, that has a deductible of $1,250 for an individual and $2,500 for a family.

That means that before your insurance company pays a dime for your care, you must have spent $1,250 out of your own pocket, assuming you bought individual coverage.

Locally, Blue Cross and Blue Shield of New Mexico offers five HSA-qualified products today and plans to offer more when healthinsurance exchanges begin operation Oct. 1.

Lovelace has a high-deductible product it sells to small- and large-employer groups. Presbyterian offers high-deductible plans to small and large groups, and expects to offer high-deductible coverage to individuals next year on the exchange.

HSA funds can be used for medical services not covered by the insurance policy, so HSA owners can use tax-advantaged funds to pay for their children's braces, for example.

For all of their advantages, HSAs have been slow to penetrate the market. America's Health Insurance Plans, an industry group, says 15.5 million people in the United States have HSAeligible coverage out of about 250 million people who have private insurance, Medicare, Medicaid, veterans' benefits and other types of health insurance. That's still a big leap from 2005, when only about a million people had HSAs.

Local popularity

Eric Weinstein, senior vice president of Aon Risk Solutions, which provides benefits consulting and management to businesses, said that in New Mexico, "six of our top 10 accounts have an HSA, but only nine of our top 30 do."

There are a few reasons HSAs aren't more popular.

"When people understand them, they like them," Day said. "It takes a lot of time to explain them. It takes a lot of time to set them up."

The result, she said, is some brokers find them too difficult to sell.

Part of the complexity is that there are two transactions involved: the purchase of the insurance and the establishment of an account at a financial institution. On top of trying to buy the right coverage at the right price from the insurance company, the HSA owner has to get the right account with the right fees in the right institution.

Weinstein said that HSAs tend to appeal to higher-income earners. Not only do they have more income that could use some tax shelter, they might have more tolerance for the risk that comes with a high-deductible plan and more resources to pay medical bills.

Even so, Weinstein said, some companies in New Mexico have 20 percent to 25 percent of employees enrolled "alongside a traditional plan, which means not only the highly compensated (employees) are buying into the programs."

The returns on the HSA investment aren't what they once were, either, said Robert Gallegos, senior vice president and retail manager for New Mexico Bank and Trust, which accepts HSA deposits.

Interest rates are down, which limits the appeal of an HSA.

"With the economy the way it has been the last couple of years, we haven't had a lot of them," Gallegos said.

But for some clients, he said, the tax advantages and the long-term savings potential of HSAs can offset short-term issues.

Some people just don't like the idea of paying so much out of pocket. Day finds that healthier people and business owners are more likely to buy high-deductible plans and make HSA deposits than other customers.

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