Health Savings Accounts (HSAs)- What they are and how to use them-2009

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A summary of current law on the use of Health Savings Accounts

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Health Savings Accounts (HSAs)- What they are and how to use them-2009

  1. 1. Health Savings Accounts Health Savings Accounts What They are and How to Use Them
  2. 2. Health Savings Accounts Outline • Definition of an HSA • Individuals Eligible to Contribute to an HSA • Requirements of an HDHP • Contribution Limits • Reimbursable Expenses • IRS and Legislative Clarification of HSAs • Comparison of HSAs, MSAs, HRAs, and FSAs
  3. 3. Health Savings Accounts Definition of a Health Savings Account • Medicare Prescription Drug, Improvement and Modernization Act of 2003 • Effective January 1, 2004 • Tax exempt trust owned by the individual • Used to pay for qualified medical expenses • Modeled after Archer MSAs
  4. 4. Health Savings Accounts Individuals Eligible to Contribute to an HSA • Covered by a high deductible health plan as of first day of month • Not also covered by another health plan that is not a high deductible health plan (with some exceptions) • Individuals covered by an FSA which includes a 2½ month grace period can be eligible to contribute to HSA the following year if: – Have a zero FSA balance at end of plan year, or – Transfer unused balance into HSA at end of FSA plan year
  5. 5. Health Savings Accounts Individuals Eligible to Contribute to an HSA • Cannot be a dependent on another tax return • Cannot be entitled to Medicare benefits • Shareholders in an S-corp are eligible • Contributions can be made by employees through a cafeteria plan or on their own (tax deductible) • Employers
  6. 6. Health Savings Accounts Requirements of an HDHP Type of Minimum Annual Maximum out of Coverage Deductible pocket expenses* Single $1,150 / $1,200 $5,800 / $5,950 Family $2,300 / $2,400 $11,600 / $11,900 *Includes the deductible Figures reflect 2009 / 2010 calendar years and are adjusted annually (by June 1st).
  7. 7. Health Savings Accounts Requirements of an HDHP • May not pay benefits until the deductible has been satisfied, except for preventive care • Prescription drug coverage must be subject to the deductible • Network plans are not required to comply with the deductible and out-of-pocket requirements for out-of- network services • Embedded deductibles are not permitted under family coverage unless they meet HSA requirements
  8. 8. Health Savings Accounts Requirements of an HDHP OR Medical Expenses Medical Expenses $2,300 $1,300 $400 $600
  9. 9. Health Savings Accounts Contribution Limits • For each month covered under an HDHP, an eligible individual may contribute 1/12th of $3,000 / $3,050 for self-only coverage and 1/12th of $5,950 / $6,150 for family coverage* • Individuals who are eligible to contribute to an HSA in the last month of a taxable year can contribute an amount equal to the annual HSA contribution amount • HSA contribution limit is reduced by any contributions made to an MSA in the same year *2009 / 2010 amounts; HSA contributions do not have to be made in equal amounts each month and can be made in a lump sum
  10. 10. Health Savings Accounts Contribution Limits • If an employer contributes to the HSA account, it must make comparable contributions for all participating employees* • However, an employer may exclude “highly compensated employees” (as defined by the IRS) when determining whether contributions are comparable • Thus, an employer can make greater HSA contributions to lower wage employees *Does not apply to employer contributions made through a cafeteria plan
  11. 11. Health Savings Accounts Contribution Limits • Catch-up contributions  Individuals age 55 and older by the end of the taxable year may contribute an additional $1,000 to their HSA in 2009 and beyond • Rollover contributions can be accepted from another HSA or MSA and are not subject to the annual contribution limit
  12. 12. Health Savings Accounts Contribution Limits • Can make a one time transfer of an employeeʼs Health FSA or HRA balance to an HSA, not subject to the annual contribution limit • Employees can make a one time rollover from an IRA to an HSA, but it does apply to the annual contribution limit
  13. 13. Health Savings Accounts Contribution Limits • Both the employee and employer may each contribute to the HSA in the same year • Contributions which exceed the limits are subject to an excise tax and regular income tax (not including appropriate rollover amounts)
  14. 14. Health Savings Accounts Reimbursable Expenses • Qualified medical expenses for account beneficiary, spouse, or dependents • Qualified medical expenses as defined in 213(d) – COBRA premiums – health insurance while receiving unemployment insurance – qualified LTC premiums – Any health insurance premiums paid, other than Medicare supplemental policies, by individuals age 65 and over
  15. 15. Health Savings Accounts Clarification of HSAs • The IRS continues to issue guidance regarding HSAs. This can be found on the United States Treasury Website: http://www.treas.gov/offices/public-affairs/ hsa/technical-guidance/ • Further, when new HSA related legislation is passed, the legislation can be found on the Treasury Website: http://www.treas.gov/offices/public-affairs/hsa/ index.html
  16. 16. Health Savings Accounts Clarification of HSAs • The Treasury Website is also a great place to look for press releases and consumer friendly government materials regarding HSAs: www.treas.gov/offices/ public-affairs/hsa/
  17. 17. Health Savings Accounts Comparison of HSAs, MSAs, HRAs, and FSAs • Employer and employee can contribute in the same year • May contribute $3,000 / $3,050 for individual coverage and $5,950 / $6,150 for family coverage in 2009 / 2010 • HSA has lower deductibles, no maximum deductible • No substantiation requirement • No penalty if withdrawals are due to death, disability, or if made after eligible for Medicare

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