Health Savings Accounts (HSA's) 

In an effort to give Americans more control over healthcare decisions, and to help reduce overall health care costs, a tax-free Health Savings Account (HSA) can now be used to pay for qualified health expenses incurred by business owners, employees, their spouses, or their dependents. In order to qualify, an individual must have a high deductible health plan (HDHP). Most Utah insurance carriers will offer compliant HDHPs by January 1, 2005 (Regence Blue Cross Blue Shield of Utah will launch their HSA October 1, 2004).

MillerWade HSA benefits & advantages

• Lower and more stable monthly health insurance premiums
• Immediate tax-savings (all qualified deposits are 100% deductible)
• Long-term growth potential (the only way to actually “make money” with a healthcare plan)
• Tax-free withdrawals to pay medical expenses covered under the policy, and for many medical services not covered by insurance (dental, vision, acupuncture, alternative medicines, etc.)
• Tax-free withdrawals to pay for supplemental benefit plans, long-term-care insurance, COBRA premiums, or health insurance premiums while unemployed

Details:

• HSAs are open to individuals covered by a high deductible health insurance plan. The annual deductible must be at least $1,000.00 for individual coverage, and at least $2,000.00 for family coverage.
• HSAs are a significant improvement over previous savings vehicles, which were limited to employees of small businesses and the self-employed and also required health insurance policies with much higher deductibles.
• Individuals with existing medical savings accounts (MSAs) can either retain them or roll the amounts over into a new HSA.

Taxes:

• Contributions to HSAs by individuals are fully deductible, even if the taxpayer does not itemize.
• Contributions by an employer are not included in the individual's taxable income.
• Individuals, their employers, or both can contribute tax-deductible funds each year up to the amount of the policy's annual deductible, subject to a cap of $2,600.00 for individuals and $5,150.00 for families.
• Individuals over age 55 can make extra contributions to their accounts ($500.00 in 2004, increasing to $1,000.00 by 2009) and still enjoy the same tax advantages.
• The interest and investment earnings generated by the account are also not taxable while in the HSA. Amounts distributed are not taxable as long as they are used to pay for qualified expenses.
• Amounts distributed that are not used to pay for qualified medical expenses will be taxable, plus a 10% penalty to be applied to deter the use of the HSA for non-medical purposes.

Distribution of Funds

HSA funds can be used to cover qualified medical, dental and vision expenses such as insurance deductibles, co-payments for office visits and prescriptions, etc. In addition, HSA funds can be used to purchase over-the-counter drugs, long-term care insurance, and to pay health insurance premiums (COBRA) during any period of unemployment. The process of withdrawing funds is very simple with the SmartCard ™ HSA debit card. Similar to banking debit cards, the SmartCard ™ screens all requests and only allows qualified HSA purchases.

Ownership

HSAs are portable, so an individual is not dependent on a particular employer to enjoy the advantages of having an HSA. Like an individual retirement account (IRA), the HSA is owned by the individual, not the employer. If the individual changes jobs, the HSA stays with the individual.

MillerWade HSA

Through a unique relationship, MillerWade HSA and a local administrator offer a “turnkey” HSA benefit plan. Our benefits specialists and financial advisors can provide professional advice and create solutions that meet your needs.

Health Savings Account Q & A

Question #1: What is an HSA? If you haven’t heard of the new Health Savings Accounts (HSA), it is only a matter of time until you do. They are the newest health expense & tax reducing strategy in the marketplace. An HSA is a tax-sheltered, medical savings account similar to an IRA, but earmarked for medical expenses. HSAs are designed to help individuals save for qualified medical health expenses on a tax-free basis. HSA deposits are 100% tax-deductible for the self-employed and can be easily withdrawn by check or debit card to pay routine medical bills with tax-free dollars. The new legislation allows people who acquire medical policies with deductibles of at least $1,000.00 for a single person or $2,000.00 for a family to establish tax-free "health savings accounts." They, or their employers, can fund these accounts with an amount equal to the deductible, up to $5,150.00/year.

Question #3: Who can create an HSA? ALMOST EVERYONE will be eligible for the HSA. Most importantly it is good for the self employed and small business owners, which have usually been excluded from such programs. Any individual ($1,000.00 or higher) or family ($2,000.00 or higher) who is covered by a high-deductible health plan (HDHP) may establish an HSA. Individuals over the age of 55 can make extra contributions to their accounts and still enjoy the same tax advantages. If you are eligible for Medicare you cannot participate.

Question #4: Why are they good for me? Bottom line…they help you save taxes and pay for medical expenses. Every year the money placed in an HSA that is not spent, stays in the account and gains interest tax-free, just like an IRA. Deposits can be invested in a variety of investment vehicles including: Savings accounts, Money Market funds, mutual funds, stocks & bonds, etc. Unused amounts remain available for later years (unlike amounts in Flexible Spending Accounts/Cafeteria Plans that are forfeited if not used by the end of the year). All money going in are pre-tax dollars and withdrawals for medical care are tax-free. Money that individuals put into HSAs are not taxable and individuals can sock away the amount of the deductibles on their health plans up to $2,600.00 for individuals or up to $5,150.00 for families. Finally, HSAs are portable and owned by the employee. So if the employee changes jobs, the HSA goes with them. HSAs offer greater flexibility on how to spend hard-earned dollars on health care.

Question #5: How do they work ? Take the money you currently spend on high cost, low deductible, traditional health plans and put a portion towards a low cost, higher deductible policy and deposit the balance into a tax-deductible HSA. The savings accounts should be used to help pay smaller covered medical expenses until the deductible is met; should the need arise, the high deductible insurance policy takes care of covered medical expenses exceeding the deductible. Tax-advantaged contributions can be made in three ways:

1. the individual and family members can make tax deductible contributions to the HSA even if the individual does not itemize deductions,
2. the individual’s employer can make contributions that are not taxed to either the employer or the employee, and
3. employers with cafeteria plans can allow employees to contribute untaxed salary through a salary reduction plan.

If you would like information on the health insurance plans required for a health savings plan, contact Miller & Wade Financial Group. Miller & Wade is the 3 rd largest Employee Group Benefit company in Utah, servicing over 600 companies and thousands of individuals.

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