America's Health Savings Plan

America’s Health Savings Plan
Health Savings Accounts are exceeding the expectations of most healthcare providers and continue to be a popular health care solution for many Americans. If you haven’t heard about an HSA, it is only a matter of time until you do. Below are some common Questions and Answers to the growing-in-popularity HSA plans.
What is an HSA? A Health Savings Account (HSA) is a tax-favored saving account that is used in conjunction with a high-deductible health insurance plan (HDHP) to make healthcare more affordable and to save for retirement. They were approved by Congress in December 2003. An HSA is a tax-sheltered, medical savings account similar to an IRA, but earmarked to pay for qualified medical expenses on a tax-free basis. The legislation allows people who acquire qualified high deductible health plans (HDHP) with deductibles of at least $1,100 (single person) or $2,200 (family) to establish an HSA. In 2009, they, and/or their employers, can fund these accounts with an amount up to $3,000 (single person)/$5,950 (two-party or family). If you are 55 or older you can make an additional “catch-up” contribution of $1,000. Each dollar contributed is an immediate dollar for dollar reduction in taxable income.

Who can create an HSA? ALMOST EVERYONE is eligible for the HSA regardless of income or working status. Most importantly it is good for the self employed and small business owners, which have usually been excluded from such programs. Any individual who is covered by a high-deductible health plan (HDHP) may establish an HSA. Individuals over the age of 55 can make extra contributions to their accounts and still enjoy the same tax advantages. If you are over 65 and/or are eligible for Medicare you cannot participate.

Why are HSAs good for me? Bottom line…they reduce health insurance premiums, help you save taxes and establish a fund to be used throughout your life time for qualified medical expenses. Funds placed in an HSA that are not spent, stay in the account and gain interest tax-free, just like an IRA. Deposits can be invested in a variety of investment vehicles including: Savings accounts, Money Market funds, mutual funds, stocks & bonds, etc. Unused amounts remain available for later years (unlike amounts in Flexible Spending Accounts/Cafeteria Plans that are forfeited if not used by the end of the year). In most cases, deposits to the HSA are withheld pre-tax and withdrawals for qualified expenses are taken out tax-free. HSAs are also portable and owned by the employee. If an employee changes jobs, the HSA goes with them.

How do they work? First of all, you must obtain a qualified high deductible health plan (HDHP). Secondly, you must establish an HSA through a qualified administrator. Once you have the account, tax-advantaged contributions can be made in three ways: 1) the individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions 2) the individual’s employer can make contributions that are not taxed to either the employer or the employee and 3) employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan.

Why should you get an HSA?
The answer is simple…it can save you taxes which in turn means you will have more disposable income.

Does it cost to set up an HSA?
Depending on who administers the plan, the cost will range between $2.50 - $6.00/month.

What are qualified medical expenses?
HSAs can be used to pay for many types of medical expenses even some that are often excluded on traditional health insurance plans. These include:
• Health insurance plan deductibles, co-payments and coinsurance
• Prescription and over-the-counter drugs
• Dental services, including braces, bridges, and crowns
• Vision care, including glasses and Lasik eye surgery
• Psychiatric and certain psychological treatments
• Long-term care expenses
• Medically-related transportation and lodging

Typically, HSAs cannot be used to pay health insurance premiums, although there are exceptions for:
• Health insurance premiums if you are receiving federal or state unemployment benefits
• Premiums for COBRA qualified health insurance
• Long-term care insurance premiums
• Premiums for a health plan (other than a Medicare supplemental policy) for an individual age 65 or older

Is my money safe?
Funds in an HSA are held in a trust and are administered by a bank, insurance company, or other approved 3rd party trustee.

Funds in your HSA are invested at your discretion. Typically an HSA will allow you to choose from the following options:
• Interest-bearing account
• CDs
• Money market funds
• Mutual funds

If you are looking to minimize your investment risk, you may want to consider an interest-bearing account; these accounts are FDIC insured. On the other end of the spectrum, mutual funds may provide a greater return, but are more risky, and are not FDIC insured.

The HSA information provided is for general purposes only and is not tax advice. The publisher urges you to consult with your financial advisor, insurance broker, accountant, or tax advisor before opening a health savings account to determine if it is appropriate specifically for you.

Additional References:
Brent Wade, CEO, MillerWade
Scott W. Miller, President, MillerWade National
800-508-1144
scott@millerwade.com