Supplement retirement with health savings

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New rules governing Health Savings Accounts are making them more attractive to consumers, who can use HSAs to help reduce health insurance costs now -- and, potentially, in retirement.

Health Savings Accounts are like Individual Retirement Accounts for health care. They were created by Congress in 2003 so that workers could cover some of their medical costs with pretax money if they have high-deductible health insurance plans.

The idea is that workers and their employers can fund the tax-free accounts, with withdrawals used for co-payments at doctors' offices, prescription and nonprescription medicines, and hospital services not covered by insurance.

Because unused balances in the HSAs can be rolled over from year to year, some financial advisers are suggesting that the accounts can be a way for families to accumulate money to be used to cover health care costs in retirement, including Medicare deductibles and long-term care insurance.

JoAnn Mills Laing, author of The Consumer's Guide to HSAs, said that there were 3.6 million HSAs at the end of last year with $5.1 billion in deposits, up from 1.1 million accounts with $1.2 billion in deposits at the end of 2005.

She predicts further growth, in part because more companies are offering high-deductible insurance plans to their workers. That's because these plans are less costly for employers and employees than traditional health policies but still give workers coverage for medical catastrophes.

"Employees who hadn't been able to get insurance coverage are enthusiastic if they can get high-deductible policies because it gives them peace of mind," said Ms. Laing, who is chief executive of Information Strategies Inc., a human resources consulting firm in Ridgefield, N.J.

She pointed out that in addition to payments related to Medicare and long-term care insurance, seniors can use HSA dollars for chiropractic sessions, nursing services, dental care and glasses.

To qualify, a health insurance plan must have a minimum deductible of $1,100 for an individual and $2,200 for a family. The maximum out-of-pocket expenses are set at $5,500 for an individual and $11,000 for a family.

Under the old rules, consumers could only set aside in their HSAs the equivalent of their insurance deductibles. The new rules have raised those limits so that an individual can put $2,850 into an HSA this year, while a family can put in $5,650. People 55 and older can add $800 as a "catch-up" contribution.