Health Savings Accounts (HSA)*

Let us help you simplify your medical coverage with choices that give you more control over your health care costs, and a returned benefit. Instead of paying all costs towards a traditional insurance plan where you may receive nothing in return, you can now go with a high deductible plan to:

• Reduces your out of pocket costs
• Reduces your premium costs
• You can deposit cost savings into the HSA account before tax, just as you would for an IRA for a tax benefit. 
• Unused funds in the HSA account grow each year tax-deferred, much like an IRA and can be used to supplement retirment or continue to pay medical bills in retirement. 
• Another tax benefit: the HSA funds are able to be drawn out tax free to pay qualified medical bills.

The HSA real advantages: When compared to other consumer-driven health care options, an HSA provides the most flexible and long-term investment opportunities for consumers. Many people use less then their deductible per year in medical benefits thus for most this will provide not only a health stop gap, but added funds for retirement years from the savings.  This provides double duty for funds that formally were only able to be ear-marked for one provision of life's risks. Medical premiums once spent as premiums are forever gone. The HSA will assist you in reducing that loss, while also providing a tax savings each year.

Consider these recent health insurance statistics which explain why the HSA can be your best choice for health costs:

              73% of the US population spend less then $500 annually on health related costs.

               11% of the US population spend over $2,000 annually on health related costs.    

Consider these possible HSA savings account tax saving for 2007* which can effectively reduce the cost of your HSA medical plan by the list cost saviings as presented below.*

• Single Amounts*                                                    Family Amounts*
• $2,850 (Max annual indexed contribution)       $5,650  (Max Annual indexed contribution)
• $798 (28% Tax Bracket Federl saving)           $1,622 (28% Tax Bracket Federal savings)
• $143 (5%  State Savings                                 $283 (5% State Savings)
• Possible annual tax savings  $941*                   Possible annual tax savings $1,905*

*Individuals age 55 and over who are not enrolled in medicare may contribute a catch-up contribution for 2007 of $800 in addition to the above allowances.

*Actual tax savings will vary by state and tax bracket. This table is provided as an example of possible tax savings. Additional tax savings available on the tax-deferred earnings with in the HSA savings account. Before 2007 the contribution max was tied to the chosen deductible or the indexed amount whichever was lower.  Beginning with 2007 only tied to the indexed amount. 

History: Starting in 1996, the medical insurance industry started offering a form of health savings account plans with their tax favored benefits and better control over their health cost. These plans have changed over the years, offering some better benefits and more options. The current Health Savings Accounts were more recently defined in January 2004 and clarified with the 07/23/2004 notice from the Treasury Department and the IRS. Today these federally regulated HSA plans have phased out the former similar plans known as MSA, which can usually be rolled into the current HSA.

We offer HSA plans for both individual and group applications from a variety of companies.

Overview:

• A Health Savings Account plan combines a high deductible health insurance plan with a tax-favored savings account (for year 2007 and adjusted annually, up to minimum deductible of $1,100 for single plans and $2,200 for family plans.  The maximum out-of-pocket for a single plan $5,250 and the family plan $10,500 these may vary from company to company within these limitations. 
•  The funds deposited into the health savings account (HSA) before tax are 100% tax deductible, similiar to those funds deposited for an IRA.
• Funds can be drawn out tax free to pay the deductible and other qualified medical expenses not covered by the health plan such as dental, vision, Qualified Long Term Care insurance premiums, and a long list of other qualified medical items as defined by IRS code Section 213(d)*. 
• Once the deductible is met by the client, the insurance plan pays 100% of covered expenses, or 80%, depending on your chosen plan of co-insurance.
• Qualified medical expenses can include medical expenses for dependents, as shown on your tax return, which are not covered by the high deductible insurance plan. 
• Funds used to pay the deductible and other qualified medical expenses are withdrawn tax-free; unused funds continue to accumulate interest tax-deferred, much like an IRA, and then at retirement can be withdrawn as IRA funds are.
• Each year an individual is allowed to save the lesser of 100% of the health plan's annual deductible or the federally allowed amount, for year 2007, individual plans $2,850 and for family plans $5,650 adjusted annually. Individuals age 55 and over who are not enrolled in medicare may contribute catch-up contributions annually of $800. 
• Those over 65 do have limitations with these plans.  Those covered by Medicare are not allowed to continue to contribute to the plans, but they can use the funds that they have accumulated to pay qualified LTC premiums and some other elements of their health care costs.
• HSA funds can be used tax-free to pay COBRA or other mecidal insurance premiums during periods of undemployment or temporary layoff while collecting unemployment compensation.
• At age 65, unused HSA funds can be withdrawn for non-medical reasons without penalty to supplement your income just as those of an IRA or other retirment plan..  (Ordinary income tax applies for these with drawals)
• For the employee funds are portable whether deposits were made by the employer, employee, or both.

Other features:

• If you should die with an active HSA account: The funds are passed on to your beneficiary or your estate if no beneficiary is named. For your spouse, it can continue to be used as an HSA account for them. Other non-medical withdrawals from your HSA account are taxable income and subject to a 10% tax penalty and counted as ordinary income in the year they are withdrawn. Exceptions to the 10% tax penalty are the above death benefit, attained age 65, or totally and permanently disabled.  At this time withdrawals after 65 would be considered as IRA funds are treated--as ordinary income--for taxes.
• Who can have a HSA account plan? Individuals covered by a high deductible medical insurance plan as defined above, and not covered under another health insurance plan, and those not entitled to Medicare.*  Exceptions to other health insurance plans include accident plans, dental care, disability, long-term care, and vision care, or discount health plans, all other plans would disqualify the individual from using a HSA account plan.* 
• Who can contribute to the HSA Account?  For the plan paid by an owner, you or a family member can contribute also, however, the tax benefit goes to the holder of the account. An employee, an employer, or both can contribute (or a relative), however, the individual holder of the account has 100% vesting in the funds if they should leave the employment of their employer from day one.  Funds can be contributed in lump sum, monthly, quarterly, semi-annually or annually.  If an employer should contribute funds into an employee's HSA account in lump sum and the employee should terminate their relationship, there could be an over funding tax issue that should be reviewed with your tax professional. For an employer, employee relationship, the tax benefit is in direct relationship to the amount which each contributed to the plan.  Please check with your tax adviser for your specific case as we are not in the tax advising profession.
• Rollovers from an IRA to a HSA:  One of the greatest deterrents to taking advantage of a lower premium HSA-qualitied health plan has been the fear of starting such a plan without sufficient funds in the account to cover unexpected healthcare expenses.  The new law effective 01/01/2007 will permit a one-time turstee-to-trustee transfer to an HSA from an IRA. This allows for a peace of mind knowing that the HSA can have funds to assist with with medical costs by using a IRA transfer. These rules apply:
  • The amount of the transfer is limited to the maximum annual contribution for the type of coverage (single/family)in effect.
  • The amount of the transfer reduces dollar for dollar the amount the individual could otherwise contribute for the year.
  • The "Test period" would apply, meaning that the person making the transfer would need to remain HSA eligible for the remainder of the current year and the entire next year.
• Rollovers from a FSA Funds can be rolled with similar restrictions as for an IRA rollover.
• For those that open a plan for a month other then January The law change effective with 2007 removes the barriors for contributing the maximum amount for the year.
• The HSA plan usually reduces or eliminates the annual out-of-pocket exposure policyholders need to deal with.
  • There is one deductible per family, or individual if the client is a single coverage plan.
  • The co-insurance limit offered is 100% after the deductible, or 80% after the deductible, as offered by some companies. 
  • There are no co-pays such as Dr. visit or hospital co-pays to deal with. 
• In-network provider advantage: Use of your PPO or other network connected with your selected plan will assist with the deductible amounts and stretch your dollars

• If a medical expense is not a covered expense under the medical insurance, you can use you HSA account money to pay the bill if it meets the list of qualified medical items as defined by IRS code Section 213(d).

Possible Options that vary from company to company at an added cost: *

• Some companies offer a HSA hospital indemnity rider designed to protect against major expenses during the early months of coverage while funds are accumulating in your HSA account. These usually provide a lump-sum benefit after a certain number of days of hospital confinement and can be used to cover the deductible or other usual medical expenses that would normally be covered expenses by your plan.  These riders usually decrease monthly to zero, covering from the first month to 16 months. These are not usually offered for plans with a $1,000 or $2,000 deductible.*
• Most companies offer preventive care features that waive the deductible for listed preventive care which are covered at 100% in network. These may include are not limited to such benefits as:*
  • Routine well child care visits through age 18
  • Childhood immunizations
  • Mammogram, pap smear, and PSA test, includes one test per calender year
  • Adult preventive care age 19 and older, 12 month waiting period, $35 co-pay then 100% up to $300 per calender year
  • Some companies offer others
• Some companies offer discount card option that offer a variety of other medical services such as a discount on dental and vision services.*

Most HSA do have a small management fee of about $3 monthly and also a check fee as well, for bounced checks or stopped payments as with any other checking accounts. 

Interest earned on the HSA account varies from company to company, as do the fees.

The HSA does require you to maintain good records of your medical expenses. When the expenses have met your chosen deductible limit, a copy of the bills must be sent to the insurance company for review of qualified expenses paid from your HSA account, to receive payment of expenses above your deductible. 

* Please note that this HSA overview is not designed to completely cover all possible benefits and features of these policies. The discussed options and benefits vary from state to state, company to company, and plan to plan. Please contact us for availability. Please note that what is presented here is not a HSA policy; please refer to the chosen specific HSA policy for limitations and policy explanation of benefits and features. 

* Since we are not tax professionals, nor are we offering tax or legal advice, we urge you to review the listed IRS code to be sure your medical expense is listed with your tax professional or legal advisor.

Futher infromation may be found at the Government offical site for HSAs at http://www.treas.gov/offices/public-affairs/hsa/

Last updated 09/07