Health Savings Accounts – HSA's – The Who, What, Where, When and Why on HSA's.
What is an HSA?
Health Savings Accounts - HSA's are accounts owned by the individual that allow money to be deposited into a tax-deferred account to pay for current and future medical expenses. They are similar to an MSA-Medical Savings Account, which was the predecessor of the HSA. This money can be deposited by you and/or your employer. You can think of it as an IRA/Flex account combination. An HSA must be tied to a high-deductible health insurance plan (HDHP) which is designed to fit the requirements of an HSA. There are limitations on the amount that can be contributed each year.
Who will it benefit?
HSA's can be beneficial to individuals, small businesses or any size business that is interested in pursuing a high deductible insurance and lowering their healthcare costs. This can be extremely beneficial if you only use your insurance for accidents or unexpected medical circumstances. It is also beneficial if you are looking for lower rates on your insurance premiums but would like to have an account available where you can accumulate funds to use for your medical expenses while meeting your deductible and co-insurance. It can also be used for expenses not covered by the insurance. There is no deadline on withdrawal of the funds and they can be withdrawn for other than medical expenses penalty free after an individual is eligible for Medicare.
When will they be available?
They are available now. They are hard to find. Most companies that I contacted such as Bank of America and ADP were not familiar with Health Savings Accounts or did not offer this as of yet. They may be offering these accounts in the future. Not all agents are interested in selling the product since the high-deductible insurance premiums do not provide for a high-profit margin. However, I did find several insurance companies that offer these insurance plans. Fortis Insurance was instrumental in getting the HSA legislation passed. Fortis invested a tremendous amount into the HSA program and feels that this product is the wave of the future. Also, World Insurance, IAC, and American Medical Security have designed high deductible plans. All these companies feel that HSA's are going to be in great demand from the public. Blue Cross/Blue Shield is planning on having a plan available in January 2005. After doing some internet surfing I found an expert on HSA's at
http://www.americanhealthvalue.com/ that provided a wealth of information about HSA's and even has links to insurance companies that offer the high-deductible medical insurance by state.
Why have an HSA?
Small Businesses - It allows a company to provide insurance without having to pay high premiums. The employer can also contribute to the account of the individual for the difference in the lower premium. There are certain limitations on employer contributions, but they are done completely tax free to the employee and tax deductible to the business.
Individuals - Contributions to the HSA are an above-the-line deduction on the 1040 with certain limitations. Individuals 55 and older can make "catch up" contributions - $500 in 2004. Deductions from the account for qualified medical expenses are tax free and include over-the-counter medications and apply to the person covered, their spouse and dependents even if the spouse or dependent are not covered by the insurance plan. HSA's can be used to pay for COBRA continuation coverage, health plan coverage while on unemployment, qualified long-term care insurance and some expenses for individuals enrolled in Medicare. HSA's provide a vehicle to allow savings for future medical expenses and while in the account are invested to allow the account to grow the investment earnings. HSA's are owned by the individual and controlled by the individual allowing them to decide on contributions, withdrawals and investment options. HSA's remain with the individual regardless of employment, age, where they live, marital status or future medical coverage. There are no "use it or loose it rules" as there are with FLEX accounts.
Where can I get an HSA account?
American Health Value -
http://www.americanhealthvalue.com/ is one company which offers the administration of this account for a nominal fee. At this web site you can learn just about everything there is to learn about HSA's, about the mechanics of setting up an account, how the account works, how to withdraw and contribute funds, what expenses are eligible and what types of options can be set up. You can click on Insurance Agents by State to find a local agent in your area that sells the high-deductible medical insurance plans that are designed to work with the HSA account. In New Mexico I contacted Judy Anderson, an independent insurance broker in Albuquerque. She has insurance plans that fit the HSA requirements. She can be reached at 1-800-627-2433 or jeander@aol.com for further information on New Mexico insurance plans with an HSA. She advised me on the rating of the insurance companies she would quote which were all "A" rated. It is important to find an insurance company for any insurance you buy that has a good rating since if they go out of business you will need to find another insurance company and if you have too many claims you may have difficulty finding one that will insure you. Happy Insuring!
Coming Soon - Retirement Planning for Small Businesses
About the author:
About the Author
Dianne Goodman, CPA –Specializes in servicing Small Businesses and Individuals. Visit
www.dgoodmancpa.comfor relevant and current information on a variety of financial and tax issues focusing on small and very small businesses and individuals or call at 1-866-531-3035.
CONTACT INFORMATION:
Dianne Goodman, CPA
Comprehensive Small Business Solutions, PC
505 323-2307
1 866-531-3035 toll free
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