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Commentary

Do the math; you'll like health savings
Grace-Marie Turner, The Atlanta Journal–Constitution, 1-31-06

While we debate the health effects of HSAs, it is also instructive to remember that they are also attractive investment vehicles. Major health expenses are, for most people, a relative rarity, allowing HSA owners to build up impressive financial nest eggs over years and decades. In this article in the Atlanta Constitution, Turner “does the math” and points out that HSAs could become a powerful vehicle for personal savings:

HSAs allow people to put aside up to $5,450 a year tax free to pay for medical expenses. Whatever isn't spent rolls over to the next year, and the earnings accumulate tax free. The only catch is that to qualify for the tax-free account, people must purchase a high-deductible health insurance policy to cover major expenses.
The earnings potential is significant: For example, let's take a working family that begins at age 40 depositing the full amount into an HSA each year. The family could spend $2,000 out of the account every year for the next 25 years to cover routine health costs, and still have more than $125,000 saved by retirement at age 65.
HSAs are also valuable for people who can't afford the maximum deposit. Take a single worker who deposits $500 a year to his account, which is matched by his employer. He's likely saving the amount he contributed by paying lower health insurance premiums. This worker can withdraw an average of $200 a year from the account, and in 40 years would have more than $60,000 in his account.
Both the family and the worker would receive tax savings — about $2,000 a year for the family and $280 a year for the single worker. …
A new report by the consulting firm DiamondCluster International estimates that by 2010, there will be 15 million to 25 million HSAs holding more than $75 billion in assets.

By helping individuals build equity and control health care spending, HSAs represent a win-win health care policy.



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