Health Savings Accounts What are they? Why your financial institution should offer them.
What is an Health Savings Account? • A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. • You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account. • You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.
What Is a “High Deductible Health Plan” (HDHP)? • You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover. • In order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,000 (self-only coverage) or $2,000 (family coverage). The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,100 (self-only coverage) or $10,200 (family coverage).
How much can I contribute to my HSA each year? Your annual HSA contribution cannot exceed the deductible of your HDHP. For example, if you choose a plan with a deductible of $1,000, you may not deposit more than $1,000 in your HSA for that year. If you want to save more, you must choose an HDHP with a higher deductible. If you are age 55 or older, you can also make additional “catch-up” contributions (see catch up). The most you can put into your account for 2005 is $2,650 if you have single coverage and $5,250 for a family. These amounts will be increased for inflation in future years.
If over 55, you can make “catch-up” contributions to your HSA. • Individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. The additional “catch-up” contributions to HSA allowed are as follows: • 2005 - $600 2006 - $700 2007 - $800 2008 - $900 2009 and after - $1,000 • If both spouses are eligible individuals for the “catch up” they must each established an HSA in their name. If only one spouse has an HSA in their name, only that spouse can make a “catch-up” contribution.
HSA Qualified Expenses • Dental • Prescription Drugs • Vision • Doctors office visits • Hearing • Hospital bills • and many more qualified health care expenses
Recent HSA News • Beginning in 2006, Allen County employees will have the option of choosing a health-care savings account, or HSA, instead of a more traditional insurance plan for the county’s nearly 1,900 employees • A single employee would pay a $2.50 monthly premium but would have to meet a $1,000 deductible. The county would contribute $500 to the account. • An employee plus one or more dependents would pay $5 a month and have a $2,000 deductible. The county would put in $1,000 annually.
Recent HSA News • State of Florida Employees • Under the new HSA option, in the DMS example, the premium is $64 a month, or $768 a year. That's a savings of $1,392 - some of which the employee could prudently put into an HSA. The state then kicks in $1,000 to the account for family coverage (for single employees, state contribution is $500 a year and the premium is $15 monthly).
Recent HSA News • A survey by America's Health Insurance Plans (AHIP) of its members selling Health Savings Accounts (HSAs) found 1,031,000 people were covered by HSA/HDHP (high-deductible health plan) products as of March 2005. That is more than double the figure reported by AHIP members in September 2004. • Eight percent of 555 large employers surveyed by the human capital consulting firm Watson Wyatt and the National Business Group on Health currently offer HSAs, and 18 percent plan to offer them in 2006.
Recent HSA News • Proponents of Health Savings Accounts (HSAs) predicted they would revolutionize the health marketplace. Now, less than two years after becoming law, more than a million people own HSAs. That's twice as many as in September 2004, according to a study released in May by the trade group America's Health Insurance Plans. • By most accounts, HSAs are having an enormously beneficial effect on the design of health insurance in this country. Instead of an employer or insurer paying medical bills, more than one million people are managing some of their own health care dollars.
Trustee or Custodian Responsibility • It is the final responsibility of the account holder, not the trustee or the custodian, to determine if deposits have exceeded the maximum allowable amount. • It is the responsibility of the account owner to notify the custodian or trustee if there has been excess deposits made, and it is the responsibility of the account owner to request the withdrawal of those funds, and the payment of income tax on those funds and the a pro-rata share of the earnings, and the payment of the 10% penalty tax.
Trustee or Custodian Responsibility • The trustee or the custodian is not required to determine whether the distribution is for the payment or reimbursement of qualified medical expenses. • Only the account owner is responsible for substantiating that any distribution is for qualified medical expenses and must retain records sufficient to show, if required, that the distribution is for a qualified medical expense. • Reporting requirements for financial entities holding HSA funds are relatively simple. Trustees, custodians and health savings account administrators need to file two IRS forms, one for distributions from the HSA (1099-sa), and one for contributions to the HSA (5498-sa).
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Call 262-348-1300 to see how you could be offering HSA to your customers.