Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.
What
are HSA's ?
HSA
Basics
Frequently
Asked Questions
Who
Sells HSA Medical Plans?
Who Administers the Accounts?
HSAs for the Sole Proprietor
HSA Resource Links
Contact Us
Health Savings Accounts (HSAs) were created by H. R. 1, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," signed into law by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.
New innovative Health Savings Accounts will change the way millions can save to meet their health care needs.
Any individual who is covered by a high-deductible health plan may establish an HSA. Amounts contributed to an HSA belong to individuals and are completely portable. Every year the money not spent would stay in the account and gain interest tax-free, just like an IRA. Unused amounts remain available for later years (unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year). Tax-advantaged contributions can be made in three ways: the individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions, the individual’s employer can make contributions that are not taxed to either the employer or the employee, and employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan. Funds distributed from the HSA are not taxed if they are used to pay qualifying medical expenses. To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions ($500 in 2004) to their HSAs. Individuals eligible for Medicare, may not open an HSA.
Tax-advantaged contributions can be made in three ways:
Funds distributed from the HSA are not taxed if they are used to pay qualifying medical expenses. To encourage saving for health expenses after retirement, HSA owners between age 55 and 65 are allowed to make additional catch-up contributions ($500 in 2004) to their HSAs. Individuals eligible for Medicare, may not open an HSA.
HSA Frequently Asked Questions
What
is a Health Savings Account (“HSA”)?
A
Health Savings Account allows individuals to pay for current health expenses
and save for future qualified medical and retiree health expenses on a tax
free basis.
How
can I get a Health Savings Account?
Consumers can sign up for HSAs with providers which will generally be insurance
companies and banks. Employers are likely to set up plans for employees as
well in which case the employer will generally be arranging the HSA for the
employee.
Who
is eligible for a Health Savings Account?
To be eligible for a Health Savings Account, an individual must be covered
by a High Deductible Health Plan (HDHP), must not be covered by other health
insurance (does not apply to specific injury insurance and accident, disability,
dental care, vision care, long-term care), is not eligible for Medicare, and
can’t be claimed as a dependent on someone else’s tax return.
What
Is a “High Deductible Health Plan” (HDHP)?
A HDHP is a health insurance plan with minimum deductible of $1,000 (self-only
coverage) or $2,000 (family coverage). The annual out-of-pocket (including
deductibles and co-pays) cannot exceed $5,000 (self-only coverage) or $10,000
(family coverage). HDHPs can have first dollar coverage (no deductible) for
preventive care and higher out-of-pocket (copays & coinsurance) for non-network
services.
Who can contribute to a Health Savings Account?
Contributions to HSAs can be made by either the employer or the individual,
or both. If contributions are made by the individual, it is an “above-the-line”
deduction. If contributions are made by the employer, it is not taxable to
the employee (excluded from income). Contributions can also be made by others
on behalf of an eligible individual and deducted by the individual. All contributions
are aggregated.
How
much can I contribute to a Health Savings Account?
The maximum contribution is the lesser of the deductible amount under the
HDHP or (for 2004) $2,600 for individuals or $5,150 for family coverage. These
dollar limits will be adjusted for inflation each year.
Do
Health Savings Account funds roll over year after year and get invested?
Yes, the money invested in a Health Savings Account rolls over year after
year.
Who
has control over the money invested in a Health Savings Account?
In most cases the individual will have control over the assets. However, we
know that some employers are exploring the idea of having control over the
investments.
What
happens to the money in a Health Savings Account after you hit age 65?
Once you hit 65, the amounts can be used for health expenses and to pay certain
insurance premiums like Medicare Part A & B, Medicare HMO and the employee's
share of retiree medical insurance premiums. It cannot be used to purchase
a Medigap policy. It can also be used for any other expenses. If used for
medical expenses, the amounts come out of the account tax free. If used for
other expenses, the amount received will be taxable.
Can
you roll the money in a Health Savings Account over into an IRA?
You cannot roll the HSA funds over into an IRA. They will stay in the HSA
or be rolled into another HSA.
What
can distributions from the HSA be used for?
The amounts can be distributed for either qualified medical or other expenses.
If the amount distributed is used for qualified medical expenses, then the
distribution is tax free. If the amount distributed is used for other than
qualified medical expenses, the amount distributed will be taxed and, for
individuals who are not disabled or over age 65, subject to a 10% tax penalty.
Are dental and vision care qualified medical expenses under a Health Savings
Account? Yes, as long as these are deductible under the current rules. For
example, cosmetic procedures, like cosmetic dentistry, are generally not deductible
and would not be considered qualified medical expenses. What is the definition,
or eligibility criteria, for qualified preventative health care expenses covered
by HSA policies? Treasury and IRS recently issued guidance on this topic.
Can anyone make catch-up contributions to a Health Savings Account?
Individuals 55 and older who are covered by an HDHP can make additional catch-up
contributions. They may make contributions anticipating medical expenses that
will not be covered under Medicare -- such as a portion of prescription drug
costs or Medicare Part A & B premiums.
For individuals age 55 and older, additional “catch-up” contributions to HSA allowed
2004 - $500
2005 - $600
2006 - $700
2007 - $800
2008 - $900
2009 and after - $1,000
Contributions must stop once an individual is eligible for Medicare. If both spouses are eligible individuals, both may make catch-up contributions.
How
do Health Savings Accounts fit in with the Administration’s other health care
proposals?
The Health Insurance Tax Credit is intended to improve access by making health
insurance more affordable, particularly for those with very low incomes. The
Health Savings Accounts and the High Deductible Health Insurance Premium (HDIP)
proposal included in the President’s FY05 Budget (see next question for a
description of the proposal) are designed to improve incentives by helping
to level the playing field between employer plans and insurance purchased
by individuals for a segment of market. Because HSAs and the HDIP deduction
both provide tax benefits through a tax deduction, only taxpayers who pay
individual income taxes benefit.
What
is the Administration’s High Deductible Health Insurance Premium Proposal?
The Administration has proposed that anyone who is not covered by an employer
plan should be eligible for the above-the-line deduction of premiums used
to purchase a HDHP as long as they also make contributions to a HSA. This
proposal will not be effective until enacted by Congress.
Have a question about Health Savings Accounts? Email us: Info@FortierFinancial.com
(Source:The United
States Department of the Treasury)
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The HSA Insider
National Association of
Health Underwriters
Association of Health
Insurance Advisors
National Association
of Insurance Commissioners
Who Sells High Deductible Health Plans that Qualify for HSA's?
Basically, all
group health carriers in the state of Connecticut have HSA compatible plans
available.
Call us @1.800.289.8376 for up to date information on rates and benefit structures.
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Who Administers the Medical Savings Accounts?
Here are links to banks that administer HSA accounts for employees:
Exante Bank (United Healthcare)
For more information on Medical Savings Accounts, call, email, or write:
Phone 1.800.289.8376
Email service@fortierfinancial.com
Fortier Financial
193 Middlesex Avenue
Chester, CT 06412
Attn: Robert J. Fortier CFP, CIC ^TOP
