A Health Savings Account (HSA) is a new approach to health insurance signed into law in December 2003, and made available January 1, 2004. This was further enhanced when President Bush signed into law the Health Opportunity Patient Empowerment Act.
An HSA plan has two components:
An individual or family must be covered by a qualified high-deductible health plan (HDHP) to set up an HSA. A qualified HDHP will have a minimum annual deductible for an individual of $1,100 and a maximum out of pocket expense of $5,500. For family coverage, the minimum annual deductible must be at least $2,200, with a maximum out of pocket expense of $11,000. There are other requirements that these plans will have to meet that set them apart from traditional health care plans. An insurance carrier or licensed insurance professional should verify that the plan in question is actually a qualified plan.
The savings account portion has to be specifically designated as an HSA, with a qualified provider (usually a bank) as recognized by the Treasury Department. This account is designed to pay for routine medical expenses and/or provide savings for the future. For 2008, the maximum contribution for an eligible individual with self-only coverage is $2,850, and the maximum contribution for an eligible individual with family coverage is $5,650. These limits will be indexed for inflation.
Money put into the account can be used either during the year or accumulated in the account. There is no "use-it-or-lose-it" provision. The new law also allows for a one-time transfer of funds from an IRA to an HSA.
Allowable medical expenses are defined by the IRS, and are much broader than most insurance carriers (i.e., includes dental and vision). However, in most cases, health insurance premiums are not qualified expenses. Individuals can also deduct dollars contributed to the HSA account from their gross income, resulting in tax-free medical dollars.
To be eligible to enroll in an HSA, the individual cannot be claimed as a dependent on someone else's tax return or entitled to Medicare benefits.
The advantages of an HSA to an employer are several: In most cases, by changing to an HSA, an employer lowers the fixed costs associated with offering health insurance by lowering their premiums. Dollars can be directly allocated to employee accounts thus, contributing more benefit dollars to employees, while incenting them to be more involved with their own health care decisions. Employer contributions made to an HSA are also made with pre-tax dollars.
For more information on HSAs and if one could be right for you, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.
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