If you have yet to obtain your health insurance coverage for 2014, you still have plenty of time to do so through your state health insurance exchanges or the federal exchange. Open enrollment in the health exchanges established under Obamacare lasts through March 31, 2014. You can find out which exchange to use at healthcare.gov.
The most important decision you have to make when you enroll though your health insurance exchange is what level of coverage to obtain. The health insurance plans offered though state exchanges all have standardized levels of coverage to enable consumers to better compare their costs. Four levels of coverage are available, each of which cover a specified percentage of covered benefits:
- bronze, which covers 60% of covered benefits
- silver, which covers 70% of covered benefits
- gold, which covers 80% of covered benefits, and
- platinum, which covers 90% of covered benefits.
The bronze plans are cheapest, but they also require you to pay the most out-of-pocket—you’ll have to pay for 40% of covered benefits yourself up to an annual out-of-pocket limit of $6,350 for individuals and $12,700 for families (lower in some states). After the limit is reached, your insurance pays 100% of the cost.
If you choose a bronze plan, you’ll not only have the lowest possible premiums, but you’ll have another potential benefit as well: the ability to establish a health savings account (HSA).
HSAs are like medical IRAs. You establish an HSA account with a bank or other financial institution and the money you put in your HSA each year belongs to you forever. The income the money in your HSA earns is tax-free. If you make withdrawals to pay for health expenses, they are tax-free as well.
You may also deduct your annual contributions from your income taxes each year (up to annual dollar limits). You can also deduct your contributions for purposes of determining your annual gross income (AGI) under Obamacare. If your AGI is no more than 400% of the federal poverty level for a family your size, you’ll qualify for federal subsidies to help pay your health insurance premiums.
There is no minimum amount you are required to contribute each year; you may contribute nothing if you wish. If you have individual coverage, the maximum you may contribute to your HSA each year is $3,300. If you have family coverage, the maximum you may contribute to your HSA each year is $6,550. These maximums are for 2014 and are adjusted for inflation each year. If you’re over 50, you can add $1,000 to your annual HSA contribution.
Once you reach the age of 65 or become disabled, you can withdraw your HSA funds for any reason without penalty. If you use the money for nonmedical expenses, you will have to pay regular income tax on the withdrawals. When you die, the money in your HSA account is transferred to the beneficiary you’ve named for the account. The transfer is tax free if the beneficiary is your surviving spouse. Other transfers are taxable.
You may establish an HSA only if you have an HSA-qualified health insurance plan. This is a plan with a high deductible: for 2014, a minimum of $1,250 for self-only coverage and $2,500 for family coverage. The total amount you can have for your deductible plus other out-of-pocket expenses you’re required to pay before your health plan provides coverage cannot exceed $6,350 for individuals and $12,700 for families. Most states have bronze level plans on their exchanges that are HSA qualified—meaning you can pair them with an HSA. You may have to search a bit to find one. Make sure the plan says that it may be used with an HSA.
By pairing your bronze level health insurance with an HSA, you’ll keep your premiums as low as possible. You can use the money you save to fund your HSA account. If you need to pay for healthcare during the year, you can withdraw funds from your HSA account to do so. If you don’t see the doctor much, your HSA funds will grow each year—money that belongs to you, not a health insurance company.