HSA’s (Health Savings Accounts)

The new kid on the block!

You’ve, no doubt, heard the buzz about the new Health Savings Accounts or “HSA’s”.  Created by the Medical Prescription Drug, Improvement & Modernization Act of 2003, these accounts were written into the tax law to help businesses and their employees manage the rising cost of healthcare. They offer participants the option to save pre-tax money in a savings account for the purpose of healthcare. Any withdrawals for healthcare are completely tax free. This includes not just the principal, but also the interest earned on the account. Additionally, unlike a traditional flexible spending account, the money accumulates year after year, if not used.

“What’s the catch?”

When Congress gives us something, there is always a catch. These plans must be paired with a “high deductible” health insurance plan. The theory is that if consumers must save, and subsequently pay for their own healthcare, they will be more prudent in choosing their care. The jury is still out on whether this will be the case. However, for now, HSA’s offer a much needed alternative to the rising costs of traditional managed care plans. These plans are not for everyone, but there are numerous situations in which they are appropriate. 

A Synopsis Of The HSA

·        The annual deductible on a qualified plan must be at least $1,000 for individual coverage or $2,000 for family coverage.

·        The maximum out-of-pocket exposure cannot be greater than $5,100 for individual coverage and $10,200 for family coverage.

·        Services obtained out-of-network are not subject to these limits.

·        In-network preventive services may be covered prior to your deductible.

·        Annual contributions cannot exceed the amount of the in-network policy deductible and are capped at $2,650 for an individual or $5,250 for a family.

·        Both employers and employees can make contributions to the account.

·        There is no minimum contribution required.

·        Contributions by an employer are not taxable income to the employee.

·        Contributions by an employee may be made on a pre-tax basis, through a cafeteria plan.

·        Contributions are generally made through payroll deductions on a regular schedule. However, individuals may contribute additional funds at any time during the year up to the mandated limits.

·        Individual owners of the account, not employers, are responsible for ensuring that contributions do not exceed the annual maximum.

·        Cash balances remaining in an HSA at the end of the year roll over to the next year, just as in other checking accounts.

·        The account is fully portable if an employee changes jobs.

·        It remains the property of the account owner until it is exhausted. Each account owner names a beneficiary, who becomes the new owner of the account if the account owner dies.

·        The HSA may be used for eligible expenses incurred by any spouse or dependent.

·        All expenses under Section 213d of the IRS code are eligible for reimbursement by the HSA on a tax-free basis:

o       Doctor visits, hospital expenses, lab, x-ray, and other diagnostic services

o       Prescription drugs, dental care, vision care, hearing aids

·        The account holder is responsible for ensuring that expenses paid from the account are qualified medical expenses.

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