Health Savings Accounts and You
We are committed to our client’s bottom-line. We are advocates of consumer health products and more specifically of High Deductible Health Plans paired with Health Savings Accounts. While these types of plans are not right for everyone, we believe that a large section of the market now held by traditional health insurance plans would benefit financially from a HSA style plan. We have put together a short article that will hopefully answer any questions you may have about HSA plans.
Health plans including Health Savings Accounts (HSA’s) are among the hottest trends in the group health insurance today. There are many reasons for the explosion of popularity HSA’s have seen since they’re creation in 2003 which we will examine, but first let’s look at the numbers.
In November of 2004 the American Health Insurance Providers (AHIP) reported 438,000 individuals enrolled in HSA-type plans. In January of 2008 AHIP reported 6.1 million individuals covered under HSA-type health plans. That’s nearly a 1400% increase in just three years. In the last year HSA-type plans have made up 27% of the new purchases of health insurance products in the individual market and 31% of the new purchases in the small group market. In fact, small group coverage is the fastest growing market segment for HSA-type plans. This rapid growth shows no signs of diminishing either. The US Treasury Department projects 14 million individuals will be enrolled in HSA-type health plans by the year 2010. So what has caused all of this growth? Let’s take a look at what an HSA-type health plan is and its origins.
What is a HSA?
HSA-Type health plans were created by the Medicare bill signed into law by President Bush on December 8, 2003. They were modeled after Archer Medical Savings Accounts, which were discontinued as of December 31, 2003. An HSA is a special account much like your IRA that is used to pay for qualified medical expenses. By law, HSA’s are paired with High Deductible Health Plans (HDHP’s) that do not cover first dollar medical expenses except in the case of preventative care. This simply means these health plans have no co-pay’s and all benefits offered under the plan are subject to the plan’s deductible. To qualify as a HDHP a health plan must have an individual deductible of at least $1100 and a family deductible of at least $2200. Those values are adjusted each year for inflation. Usually the HDHP that carriers pair with HSA’s are 100% coverage after the deductible, so the maximum out of pocket for the plan is the deductible. Many first dollar coverage plans (i.e. co-pay plans) do not cover 100% of the costs after the deductible is met. Many cover anywhere from 80% all the way down to just 50% of total expenses. When this occurs the insured’s costs are subject to the plan’s maximum out of pocket, which can often be two or three times the deductible.
Am I eligible?
Eligibility for an HSA-type health plan has several requirements. The first is the individual must not be enrolled in Medicare. The individual must also not be able to be claimed as a dependent on someone else’s tax returns. There is no income limit for individuals enrolling in an HSA-type plan. Individuals are also not permitted to have any other health insurance except for specific disease or illness coverage, disability coverage, dental care, vision care, and qualifying long-term care insurance. If an individual meets these requirements then he or she is eligible for HSA-type health insurance.
How do I use my HSA?
As stated above, an HSA is like an IRA for your future medical expenses. The contributions that an individual makes to his or her HSA are tax deductible and the medical expenses paid for from an HSA are tax exempt. Any expense paid from an HSA must meet the criteria for “qualified medical expenses.” These medical expenses include most any expense an individual would incur in the treatment of an ailment, including over-the-counter medicine. For a complete list of qualified expenses, check http://www.irs.gov . If funds from an HSA are used for something other than qualified medical expenses they are then added to an individual’s taxable income and a 10% penalty fee must be paid to the Internal Revenue Service. There are also contribution limits for a HSA, much like an IRA. For 2008, the individual plan limit is $2900 which will increase to $3000 next year and the family plan limit is $5800 which will increase to $5950 next year. Individuals who are between the ages of 55 and 65 are allowed to make additional “catch-up” contributions that amount to $900 for this year and $1000 for 2009.
A few things too keep in mind
Once an individual sets up an HSA its contents are fully vested. There are no “use it or lose it” penalties and changing health plans will not forfeit the funds already in an HSA. The same investment options and limitations used for IRA’s apply to HSA’s. Also, rollovers from other HSA’s or older MSA’s are permitted much like an IRA and they are limited to one per year. Tax-free distributions for qualified medical expenses can be taken for the HSA owner as well as their spouse or dependant even if the spouse or dependant is not covered under the HSA owner’s health plan. And one last thing to keep in mind is that qualified medical expenses do not include other health insurance premiums except for COBRA plans, any health plan an individual uses while receiving unemployment payments, and individuals enrolled in Medicare (however Medicare supplement premiums are not covered).
So, if you think an HSA-type plan is something you or your company may be interested in, give us a call and we will go over some options with you and let you know what types of plans have worked well for our other clients.
This site contains an investment calculator and a comparison tool where you can see if an HSA-type plan will save you money in the long-term.