HSAs Benefits and Changes Coming due to Healthcare Reform:
If you personally have a Health Savings Account (HSA) or have one for your business, you might be wondering what changes are coming due to healthcare reform. But first, let’s review what an HSA is in the first place.
What’s a Heath Savings Account?
The HSA program has two parts: a high-deductible health plan (which usually costs less than other health plans) and a tax-advantaged, portable savings account for payment of current medical expenses which builds like a medical IRA.
HSAs can be set-up and contributed to by businesses; but they are owned and controlled by individuals.
An HSA is a tax-exempt account you can open to pay (or reimburse yourself) for certain medical expenses. Anyone can qualify if you are:
· Under the age of 65,
· Not listed as someone else’s dependent for income tax purposes,
· Not receiving Medicare or social security benefits,
· Covered by a qualified high-deductible health plan, and
· Not covered by any other general health insurance plan.
What Are the Benefits of a Health Savings Account?
For your business:
· High-deductible health plans cost less.
· The cost of the insurance premium is tax deductible.
· Any contribution to employees’ HSAs are tax deductible.
· HSAs compare favorably to other plans, such as HRAs and FSAs.
· Offering healthcare makes your firm more competitive to attract and keep better, healthy employees.
· Health insurance is the number benefit sought by employees.
· HSAs can pay for more procedures and products.
For your employees:
· A tax deduction for money you they in the account, even if they don’t itemize deductions on their tax return.
· Interest they earn on the account grows tax free.
· Money they withdraw to pay for qualified medical expenses is tax free.
· There’s no deadline to spend the money – balances rollover from year to year.
· They can do a tax-free rollover from an IRA to fund an HSA once during their lifetime.
· For 2010 they can contribute up to $3,050 if your HDHP covers just the individual. If it also covers a spouse or dependents, they can contribute up to $6,150. If they’re age 55 or older, add $1,000 to both those limits.
· After age 65, funds that remain in the account can be use for non-medical expenses without penalty, similar to a traditional retirement account.
· They own and control the account – not you, their employer.
· The HSA usually come with a debit card and checks, which makes paying for qualified expenses easy.
Changes Heath Care Reform Will Make to Heath Savings Accounts
Beginning in 2011 the only medications you’ll be able to purchase with HSA funds are prescription drugs and insulin. You will no longer be able to purchase common over the counter medicines (such as Tylenol, Sudafed, Nyquil, Claritin, Contact Lens Solution, to name a few items that no longer qualify). What this means is you lose your automatic tax-free discount on OTC medicines.
Another change that’s coming next year is the penalty for spending HSA money on something that isn’t allowed – that’s called a nonqualified distribution. Right now the penalty is 10% plus ordinary income tax on the amount. If you slip up and use HSA funds for a nonqualified distribution in 2011, the penalty will be doubled to 20% plus ordinary income tax.
Where to Find a High Deductible Health Plan and Where to Find the Best Health Savings Accounts
An abundance of information is available on HSAfinder.com, including free loadable primers on HSAs, high-deductible insurance quotes and comparable information on account custodians. Note: HSAfinder.com is independent subsidiary of Information Strategies, Inc. (the company I am Chairman of); it is not part of any provider healthcare of custodian provider.
Consider establishing an HSA (high-deductible health plan and custodial account) today and start saving for you and your business.