Health Savings Accounts

Would you like to learn more about Health Savings Accounts (HSA Plans) or see quotes for you or your company? The best way to learn more about HSA Plans from our agency is to have us contact you with a proposal. Click the link below:

Group Health Insurance Quote Request Form

You can also contact our office for more information about HSA plans:

Phone: 513-891-9888
Email: tracy@mccarthystevenot.com

History of HSAs

Health Savings Accounts (or HSA Plans) were first established through the Medicare Prescription Drug, Improvement, and Modernization Act, that was signed into law by President Bush December 8, 2003. An HSA Plan combines a tax favored savings account with a qualifying “high deductible health insurance plan” or HDHP.

Here is a link to a guide from the Treasury Department regarding HSA Plans:

http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx

Key Features of HSA Plans:

HSA Accounts are individually owned (even if they are established under an employer sponsored plan).
Deposits to an HSA account can be made by an individual or an individual’s employer.
Contributions to HSA account are immediately vested to the HSA account holder at the time of deposit regardless of whether an employee or an employer deposits the funds.
Participating employees must be treated in a non-discriminatory manner (i.e. equally treated) with regard to employer contributions to HSA accounts.
Monies contributed to HSA plans are not intended to be taxable once they are deposited into an HSA account. Employer “fringe benefit” plans may allow contributions to an HSA account to be paid through direct deductions from an employee’s paycheck. Such fringe benefit contributions are pre-tax and can reduce employer and employee related payroll and social security taxes. If an employer option is not available, an individual can still list HSA Plan contributions on his or her IRS Form 1040 in order to reduce taxable income.
Monies inside an HSA account grow on a tax deferred basis.
Monies inside an HSA account are permitted to roll over from year to year and accumulate if unused.
Qualified Medical Expenses paid through an HSA account are not subject to federal income tax.

Annual Maximun Contributions

Annual maximum contribution amounts to HSA plans have increased since HSA Plans were first introduced. Here are the HSA contribution amounts for the years 2008 through 2010:

2008 – $2900 (single) / $5800(family)
2009 – $3000 (single) / $5950 (family)
2010 – $3050 (single) / $6150 (family)

“Catch-Up” Provisions

Individuals 55 years of age and older are allowed a “catch-up” provision that enables them to contribute additional funds to their HSA Plans.

Additional “catch-up” amounts:

2008 – $900
2009 – $1000
2010 – $1000

Further, a married couple can make two catch-up contributions provided both spouses are over the age of 55.

Determining Contribution Amounts

Eligibility to contribute funds to an HSA account is determined by how long a person is covered under an HSA Plan during a given year. Contributions to HSA Plans can be the maximum amount allowable or a pro-rated amount depending on the circumstances.

A full contribution is equal to the maximum annual contribution for the type of coverage you have on December 1. A prorated contribution is equal to 1/12 of the maximum annual contribution for the type of HDHP coverage you have multiplied by the number of months you had that type of coverage.

If you make a contribution that is greater than the prorated amount, and you do not remain covered by an HDHP for the whole year, the contribution amount that is greater than the prorated total is added to your income and is subject to an additional ten percent tax (penalty).

Examples:

A person begins family HDHP coverage July 1, 2009, and keeps that coverage through December 31, 2009. This person is permitted to contribute the complete $5,950 family payment to an HSA for the 2009 plan year. However, if the person does not remain covered by an HDHP throughout 2009, $2,975 would be included in the person’s earnings and be penalized with an additional ten percent tax.
A person has family HDHP plan from January 1, 2009 through June 30, 2009, then stops having HDHP coverage, he or she is allowed an HSA contribution of one half of $5,950, or $2,975 for the 2009 plan year.
A person has family HDHP plan from January 1, 2009 through June 30, 2009, and has self-only HDHP coverage from July 1, 2009 through December 31, 2009, he or she is allowed an HSA contribution of one half x $5,950 plus one half of $3,000, or $4,475 for the 2009 plan year.

Contributions to HSA accounts can be delayed as late as April 15 of the following year.

Utilizing Funds from an HSA Account

HSA Plans contain two elements:

a high deductible health plan
a health savings account

Sometimes the health savings account element of an HSA Plan is offered by a separate company other than the insurer that provides the high deductible health plan. Funds can be withdrawn from an HSA account by an individual for any reason and do not require an intermediary or claims adjuster.

Funds withdrawn from a health savings account that are spent on “documented qualified medical expenses” are considered tax free. Individuals are responsible for keeping their own records to prove that funds were spent on qualified medical expenses. Qualified medical expenses include items that were unreimbursed by the HSA Plan because they were below the HSA Plan’s deductible. Other expenses may also be considered qualified medical expenses. Guidelines for the qualification of various expenses can be found in IRS Publication 502.

See this link to view IRS Publication 502 and a list of qualified and nonqualified medical expenses:

http://www.irs.gov/publications/p502/

Expenses that do qualify for reimbursement under an HSA are sometimes expenses that would not have traditionally been covered by a standard health insurance plan.

Some examples are:

Vision care
Dental care
Durable medical equipment
Hearing aids
Ambulance services

Withdrawing Funds from an HSA Account

Funds can be withdrawn from an HSA plan by either check or (in some cases) debit card. If funds are withdrawn and are not documented as qualified medical expenses, those funds will be subject to federal income tax and an additional 10% penalty.

The 10% penalty will be waived if an individual has:

reached age 65,
is enrolled in Medicare
is considered by the government to be disabled.

If an HSA Plan owner dies, the funds in the HSA account revert to the designated beneficiary. If the beneficiary is a spouse, no taxes will be due.

HSA Plans and Preventive Care

HSA Plans may include wellness options. Some possible options are:

Well baby care
Well child care
Immunizations
Physicals

Other preventive benefits may include: routine pap tests, mammograms, prostate screening and colon cancer screening.

High Deductible Health Plans

An individual must enroll in a qualifying “high deductible health insurance plan” or HDHP to qualify for an HSA Plan. No other coverage may be in force that impacts the coverage of the HDHP. Since the inception of HSA Plans, the approved minimum individual and family deductible amounts have changed. These minimums are likely to index forward in the future.

Here is a listing of minimum deductible amounts for qualifying HDHP insurance for plans years 2005 through 2010:

2010 – $1200 deductible (single) / $2400 deductible (family). Maximum out of pocket expense = $5950 individual / $11,900 for a family.
2011 – $1200 deductible (single) / $2400 deductible (family). Maximum out of pocket expense = $5950 individual / $11,900 for a family.

For updates on HDHP deductibles, see: Revenue Procedure (Rev. Proc.) 2009-29 at:

http://www.irs.gov/pub/irs-pdf/p969.pdf

Embedded an Non-Embedded Family Deductibles

A qualifying High Deductible Health Plan may have either an embedded or a non-embedded family deductible. If a high deductible health plan has a stated individual deductible of $2500 and a family deductible of $5000, in an embedded deductible plan, an individual family member will only need to meet $2500 in claims for the HDHP to begin paying benefits. HSA Plan regulations, as of 2008, will not permit an embedded deductible to be lower than the minimum HDHP deductible for a family (as of 2009, that’s $2300 per family – see list above).

In a $5000 family deductible plan that has a non-embedded deductible, an individual family member would have to wait until claims for the entire family exceed $5000 before any claims would be paid by the HDHP component of plan. The $5000 deductible amount can be met by either one family member or by a combination of family members.

The reason the issue of embedded and non-embedded deductibles arises is due to the structure of Health Savings “Accounts” themselves (i.e. the actual cash accounts controlled by insureds). These accounts are not divided up based on the individual members of a family. Therefore, the family deductible was not divided either. Due to this fact, non-embedded family deductible HDHP plans are fairly common.

Health Savings Accounts