Special Edition on HSAs

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.

Change Creates Opportunities

Healthcare reform has been a huge issue for most, but especially for small business.

As the heat was turned up on pushing through healthcare reform the company we lead, Information Strategies* and its subsidiary HSAfinder.com’s role as an industry resource on HSAs, role as a key resource on small business and healthcare intensified. [Hence the hiatus between blog postings.] Besides providing information to scores of journalist, a key question we were asked was: Would HSAs go away, be hobbled, stay the same, or perhaps grow?

The short answer is GROW.

Healthcare Reform is requiring small businesses with more than 50 employees to provide insurance or face penalties.

The cost of health insurance is high, too high for most purchasers. That is why the majority of small businesses do not offer health insurance to their employees, although they know it puts them at a competitive disadvantage.

HSAs and the accompanying high-deductible health insurance has been and will continue to be a viable solution for small businesses, as well as for consumers and larger businesses.

The #1 frustration is the cost of healthcare (The #1 need of small business is sales).

Health costs for small business has risen 2-3X faster for small business than for larger entities. Why? Lack of purchasing power. And, their experience pools are smaller, so if a few employees (or their families) had health issues then the pool becomes more expensive.

While much of Healthcare Reform is TBD and will roll out over time, some elements are spelled out for HSAs. We know the penalty for using HSAs monies for not qualified medical expenses will have a 20% penalty (it was 10%). We also know that small businesses need to offer healthcare. HSAs are a viable, lower cost alternative due to the high-deductible insurance required; plus they have the tax-advantage of monies put in the account are tax-deductible (further monies spent on qualified medical expenses and rolled over are tax-free).

In 2010 the allowable limits for HSAs are:

Individual Minimum Deductible $1,200
Individual Maximum Out-of-Pocket $5,950
Individual Maximum Contribution $3,050

Family Minimum Deductible $2,400
Family Maximum Out-of-Pocket $11,900
Family Maximum Contribution $6,150

Catch-up Contribution (55+ years old) $1,000

HSAs and their high-deductible insurance are the fastest growing segment of healthcare.

We expect small businesses will set-up HSAs in growing numbers.

This is an opportunity for insurance brokers/agents and insurance companies to pick-up new clients and retain existing clients, albeit at lower cost. Custodians by offering will be able to grow their deposit accounts, as well as cross-sell other offerings as people seek to grow their “medical IRAs”. HSAs provide an opportunity for many: small businesses, individuals, and providers.

About Information Strategies, Inc. and HSAfinder.com

Information Strategies, Inc. (ISI) is a media and marketing company serving small and medium size businesses as a management information source, and large corporations as an advisor and marketing channel. A majority of its efforts are focused on the small- and medium-size business and healthcare arenas. Through highly specialized consultative services, ISI also offers corporate clients advice, strategies and unique channels into these two sectors. Editorially, the company has been ahead of the curve on such issues as health savings accounts.

ISI’s subsidiary HSAfinder.com provides a wealth of educational and comparative information on HSAs including purchasing high-deductible insurance and comparing the offerings of custodial providers. Because it regularly surveys its audience, ISI has become the industry source of purchasing, usage and growth data. The company’s chairperson, JoAnn M. Laing, authored two books on Health Savings Accounts, including one for small business: The Small Business Guide to HSAs. ISI hosts the annual White House briefing on HSAs.