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Health Savings Accounts (HSAs)
HSA Definition Medical Insurance Savings Accounts Using the Savings Qualified Medical Expenses Quick Medical Expense Reference 2007 HSA Rules
Health Savings Accounts (HSAs) are a combination of a tax deferred savings and catastrophic major medical insurance plan. Specifically, there is a Medical Insurance portion, a Savings Accounts portion, how you can Use the Savings, what Qualifies as a Medical Expense and a Quick Reference of those qualified medical expenses.
We'll talk about the major medical insurance first. The government rules on the deductible portion. First of all, deductibles have to be a 'high' dollar amount. Individual policy deductibles and family policy deductibles change each year.
The medical plans are major medical or catastrophic. Typically, they don't offer copays of any kind - - either office, pharmacy or emergency. Although, read the fine print (or ask your broker), some HSA plans do offer emergency as well as wellness doctor visits - such as ob/gyn visits along with pap smear, mamograms and PSA screenings. The wellness visits typically have an annual dollar ceiling for each individual on the plan.
These medical plans pay a percentage of expenses once the deductible is met. Most plans are 80% co-insurance leaving you to take care of the remaining 20%. There are 100% plans which take care of everything once you meet the deductible and there are lesser co-insurances of 70 and 60%. Of course, everything would be taken care of inside the offered network. Medical premiums would be paid directly to the medical insurance company.
The government allows you to invest the amount of your medical plan's deductible. For instance if you have a annually (that is a 12-month annual basis). See HSA Rules for 2007 below.
Ninety-nine percent (99%) of the medical companies keep their medical policy completely separate from the savings portion of HSAs. There are a couple of companies that do offer, as part of the application process, the ability to allow the same health insurance carrier to manage the savings portion. At the time of enrollment, you state (on the application) how much you want going into savings each month, which is then added to the medical premium. In these cases you pay only one premium a month which is hassle-free. These companies have offered a reasonable rate of return such as 4 and 5% from the first dollar saved in the past.
The other ninety-nine percent partner with a financial institution (outside of their organization) to handle the savings funds. It is a separate application. And it is a separate premium. On these plans there is a lot more flexibility. You can choose to let them handle the whole thing including the investments. These savings options have offered small rates of return - between 1 and 4%. Or you can ask to be the manager of your dollars. Here you not only pick the places in which you want to invest, you can also choose when to invest. On a monthly basis or a one time payment at the end of the year. You then control the rate of return. You don't even have to use the financial institution with which your health insurance carrier has partnered. When looking into a savings account, make sure you know what their monthly maintenance fee is along with their 'other' check writing/debiting, closing, etc. charges are. All of these charges eat into the savings.
The nice thing about these saving plans is you can pull dollars out of the savings account (without paying taxes on them) to pay for medical bills. (If you use the dollars for anything other than what is allowable you pay a hefty penalty of 10% tax on the dollars removed. The allowable list of things you can pay for is extensive. See Qualified Medical Expenses below.
Typically most companies offer some way of paying bills using the savings account. Either with a card or a separate checkbook. In some cases, you can decide on which way you want to handle it. Again, know what these services cost to use them. They also say, do not pay for services at the time of service. Wait until you are billed. At that time any network discounts have been applied.
We have to qualify this list. It was published 1/04 and we need to double-check it. For what its worth, here goes:
| Medical
services fees (from doctors, dentists, surgeons, specialists, and
other medical practitioners)
Prescription medicines (requiring a prescription by a doctor for their use) and insulin Oxygen equipment and oxygen Hospital services fees (lab work, therapy, nursing services, surgery, etc.) Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, etc.) |
Expenses
of an organ donor
Meals and lodging provided by a hospital during medical treatment Wages for nursing services (see pub 502) Social Security tax for worker-provided medical care (see pub 926) Psychiatric care Capital expenses for equipment or improvements to your home needed for medical care (see pub 502)
|
Transportation
for needed medical care (see pub 502)
Treatment at a drug or alcohol center (includes meals and lodging provided by the center) Legal operations to prevent having children or to terminate a pregnancy Cost and care of guide dogs or other animals aiding the blind, deaf, and disabled. Cost of lead-based paint removal (see pub 502) NOTE: Health insurance premiums may be allowed by 213(d), but the law limits these to specific circumstances. |
Quick Qualified Medical Expenses Reference
|
Acupuncture Artificial Limbs Artificial Teeth Birth Control Braces Braille Books/ Mag Blood Trans- fusions Cardiographs Chiropractors Contact Lenses |
Crutches Dental Treat- ment Dentures Dermatologist Diagnostic Fees Eyeglasses Guide Dog Hearing Aids Hospital Service Insulin Treat- ments |
Laboratory Fees Learning Dis- ability Medicine Services Neurologist Nursing Home Nursing Services Obstetrician Operating Room Costs Operations |
Optician Optometrist Orthopedist Osteopath Oxygen Pediatrician Physician Physiotherapist Podiatrist Postnatal Treatment Prenatal Care |
Prescription Medicine Psychiatric Care Psychoanalylsis Psychologist Sterilization Transplants Vaccines Vasectomy Wheelchair X-rays |
2007 Health Savings Account Rules
| Item | Old Rule | New Rule |
| HSA Contribution Limits | Consumer could only contribute the lesser of the plan deductible or the statutory limits. | Consumers can now contribute up to the annual maximum amount of $2850 for individuals or $5650 for families in 2007 as long as they are enrolled in a qualified HSA plan as of December 1st and meet certain conditions. |
| Pro-Ration of Contribution Limits | The maximum annual contribution was pro-rated based on the number of months the account holder was eligible during the year. | Pro-ration no longer applies even if consumers join an HSA plan late in the year. As long as they are enrolled by December 1st of the tax year and remain enrolled in the plan for the following year they are eligible. |
| Timing for Changes in Limits | Contribution limits were typically released by the U.S. Treasury in late October or early November in the preceding year. | The maximum contribution limit will now be subject to an annual cost-of-living increase that will be communicated by June 1st of the preceding year by the U.S. Treasury. |
| IRA to HSA Transfer | Previously, funds could not be transferred from an IRA to an HSA. | Consumers are now able to make a one-time, tax-free trustee-to-trustee transfer from an IRA to an HSA. The consumer must remain enrolled until the same date the following year. |
| FSA or HRA to HSA Transfer | Pre-tax funds could not be transferred from an FSA or HRA to an HSA. | Employers can allow employees to make a one-time tax-free transfer of certain amounts from an FSA or HRA to an HSA (provided the FSA or HRA was available as of September 21, 2006). The employee must remain enrolled until the same date of the transfer the following year in order to treat the transfer as a pre-tax transaction. |
| FSA 1-1/2 Month Grace Period | A consumer as ineligible for an HSA until the first day of the month following the FSA grace period (not to exceed 2-1/2 months). | Consumers in an FSA can contribute to an HSA as well if their FSA balance is zero at the end of the preceding year, OR, if the consumer is eligible and the employe3r permits, a consumer can transfer the FSA balance as a one-time transfer to their HSA. |
| Comparable Contributions | An employer was required to make comparable contributions for all participating employees regardless of compensation differences. | Employers may under certain conditions be eligible to make higher contributions for "non-highly compensated employees" without a cafeteria plan. Employer contributions to an HSA based on completion of wellness activities would still require funding through a cafeteria plan. |