Health Savings Accounts

Health Savings Accounts are one of the most exciting tools available to fight increasing health care cost. Health Saving Accounts (HSAs) were included in the Medicare legislation enactment created December 2003 to become effective January 2004. The Bill is modeled after the Archer Medical Savings Account (MSA). The impetus of the HSA as well as its MSA father is to allow a tax favored vehicle to encourage people to buy an affordable and flexible health plan. The insurance carriers are able to offer these plans at an affordable price for two reasons:

1. These are high deductible plans and therefore, the insurance carrier does not pay for the small claims or the administration to process them.
2. Those who purchase HSA plans are generally healthier, concerned more with protecting themselves from major medical bills. Insurance carriers examine each plan’s claims and adjust premiums appropriately. Purchasing one of these plans means putting yourself in a healthy claims pool.

There were several reasons the MSA never gained wide spread appeal:

1. The legislation allowing MSA plans were not adopted permanently.
2. They were only available to self-employed and those working at companies of less than fifty employees.
3. Tax deductible contributions could be made by either the employee or the employer but not both.
4. Cafeteria plans, under Internal Revenue Code Section 125, excluded HSA plans.
5. The level of deductibility was limited to 65% for individuals & 75% families.

All of these shortfalls have been corrected with HSA plans.

1. Title X11, Section 1201 of the Medicare Prescription Drug Improvement Act amended the Code to make HSAs a permanent feature
2. Everyone can purchase an HSA qualified health plan- in-turn allowing them to open up an HSA account to fund their deductible on a pre-tax basis.
3. Tax deductible contributions can be made by both the employer and the employee into the same HSA account. The deduction allowed actually reduces your taxable income dollar for dollar. Look at page one of your 1040 and line 27 will say, "Archer MSA deduction," (right below IRA deduction) next year it will say HSA deduction. If you contribute $1,000 and you are in a 30% combined Federal/State tax bracket your tax savings is $300. Interest and capital gains earned is not a taxable event. Withdrawals for qualified medical purposes are not taxable. This can even be a medical expense that is not covered under your health plan such as dental & vision.
4. Contributions can be made into your company cafeteria plan or a separate HSA account - your HSA account does not have the same use it or lose it rules prohibiting deferred compensation within section 125 Cafeteria plans. Your current cafeteria plan may or may not yet have a HSA account available. We work with administrators that have the HSA account available. Several banks will allow you to open a personal HSA account. We have heard positive feedback about State Bank of Howards Grove. You can link to their site at www.msabank.com. They offer check & debit cards directly from your HSA account so there is no need to pay the doctor or hospital cash and then submit to the bank for reimbursement. Their set up fee is about $25 and there is no maintenance fee if you meet minimum balance requirements. Once again, both you and your employer can contribute to this account.
5. 100% of your deductible can be contributed into a HSA account each year. The minimum deductible eligible to qualify for a HSA plan is $1,000 single and $2,000 family. The maximum out of pocket can’t be more than $5,000 for single or $10,000 for family. There is no set maximum deductible so it technically can be as large as your maximum out of pocket. The family deductible with an HSA is cumulative: in other-words, all family members’ medical bills go toward the same deductible as opposed to traditional plans which have separate deductibles for each family member.
6. Unlike MSA’s, HSA plans have a "catch-up" provision, allowing those who are 55 years old or more to put in an additional $500 per year increasing $100 per year starting in 2005 up to an additional $1,000 in 2009.

Health Savings Accounts open up the door to both tax savings and affordable health coverage for both individuals and companies. Contributions to HSAs are both deductible to the corporation and excludable from the employee’s gross income. Many employers are empowering their employees with the ability to choose there own health plan from a menu of choices. For example, they may give each employee an allowance of $150 to choose a plan. The hypothetical employee may opt for a traditional plan that cost $200 monthly, therefore, contributing $50 per month out of their paycheck. Another employee may opt for a HSA plan which might cost $100 per month and stick the other $50 per month in there HSA account. This will give them first dollar coverage of $600 per year rolling over the unused amount each and every year. People who are self-employed or work for companies of any size get to benefit from the same tax advantages. Our job at www.benefitpackages.com is to empower people and companies with creative options to solve their health care needs. Please feel free to give us a call with any questions.

Larry Hurwitz,
Benefit Consultant
President