TurboTax might not calculate your 2007 HSA deduction

During tax season, our HSA clients are normally happy with their tax savings.  Unfortunately, this year there are many TurboTax users that are not seeing the savings they have in the past.  There is a system logic problem that doesn’t allow you to enter your HSA contributions directly.  There is another form that TurboTax requires you to complete before your contribution and tax savings will be calculated properly.

If you were covered by an HSA-qualified HDHP effective prior to December 1st, 2007, you could be eligible to contribute up to $2850 per individual or up to $5650 for any family unit for tax year 2007.  In order to get this deduction you have to have your 2007 contributions in prior to April 15, 2008.  These contributions are tax-deductible, similar to an IRA.  If your taxes are calculated properly this can amount to a tremendous savings.

Expect to hear more about this in the coming weeks. In the meantime, here are a few HSA-related help topics from the TurboTax website.

Limited Health Policies Vex Some Buyers

Did you read the article in USA Today on September 5, 2007 showing how some insurance companies have severe limitations that you should know about?

http://www.usatoday.com/money/industries/insurance/2007-09-04-limited-coverage_n.htm

 Here is my response:

Why is it that we look at health insurance so much different than any other type of insurance we purchase?  Does our auto insurance cover oil changes and windshield wiper blades?  Does our homeowners insurance cover our washer/dryer or furnace?  Why is it we expect health insurance to cover every minor expense?  The problem with our current health insurance system lies in how the services are delivered.  What else in our free-enterprise society today is delivered in a “copay” system?  Imagine buying a car and paying a $200 copay with someone else paying the rest.  Would any of us be driving the same car we are today?  Of course not!  No wonder health care now consumes over 16% of our total GDP which is 60% more than Americans spend on housing! 

With skyrocketing health insurance premiums companies such as Mega Life and Health can easily sell these limited policies to people because they get insurance that includes copays for doctor’s office visits and some prescription drug coverage at a much lower premium than comprehensive major medical plans.   

There needs to be a change in vocabulary in order for people to understand how to purchase health insurance.  Most comprehensive major medical health insurance plans have 3 moving parts consisting of deductible, coinsurance, and copays.  These 3 combine to represent some sort of out-of-pocket maximum that is difficult to understand.  Most plans do not even count copays towards this maximum.  Those plans should be described as “unlimited” out-of-pocket.  Other than the new HSA qualified major medical insurance plans, which are required by IRS guidelines to have maximum out-of-pocket limitations, it can be very difficult to understand how much is covered.

This is why you should consider an HSA qualified comprehensive major medical PPO insurance plan.  Once you own a qualified insurance plan you are then allowed to open a triple tax-advantaged (pre-tax deposits, tax-deferred interest earned, and tax-free withdrawals for eligible medical expenses) HSA account.  You then pay your smaller bills out of your HSA at the in-network PPO discount while retaining insurance in case of a larger expense.  Whatever is left in your HSA account YOU KEEP!  The insurance deductible is offset by your HSA  so that your total out-of-pocket maximum is usually much lower than it is with traditional plans. 

I have read many of Julie Appleby’s writings and she has mentioned HSAs on many occasions.  Although most health insurance brokers are hesitant to recommend HSA designs experts are still predicting 10 million HSAs will be in use by 2008.  HSAs provide a vested interest in saving health care dollars for possible future expenses, or if we never spend it, keep it to help supplement retirement income (think IRA). 

I just wish the people victimized in this article had been given this information.

N. Scott Borden
OFM Benefits Consulting, LLC
6400 Glenwood, Suite 307
Overland Park, KS 66202
913-432-2732 ext. 105
www.ofmtorch.com