Insurance
| New Health Savings Account (HSA) limits go into effect in 2010 |
| Published Thursday, September 3, 2009 7:00 am |
Plan Ahead for 2010
With Health Savings Accounts (HSAs), individuals and businesses buy less expensive health insurance policies with higher deductibles. Contributions to the accounts are made on a pre-tax basis. The money can accumulate year after year tax-free, and be withdrawn tax-free to pay for a variety of medical expenses such as doctor visits, prescriptions, chiropractic care and premiums for long-term-care insurance.
The 2010 limits for individual and family coverage have been announced by the IRS. (IRS Revenue Procedure 2009-29) They are compared with the 2009 limits in the chart below:
|
Health Savings Accounts |
2009 |
2010 |
|
Self-only coverage annual minimum deductible |
$ 1,150 |
$ 1,200 |
|
Self-only coverage maximum out of pocket |
$ 5,800 |
$ 5,950 |
|
Self-only coverage maximum HSA contribution |
$ 3,000 |
$ 3,050 |
|
Family coverage annual minimum deductible |
$ 2,300 |
$ 2,400 |
|
Family coverage maximum out of pocket |
$11,600 |
$11,900 |
|
Family coverage maximum HSA contribution |
$ 5,950 |
$ 6,150 |
Health Savings Account FAQ
What is an HSA?
HSAs are a tax-favored consumer account for individuals and families covered by high deductible health insurance plans. Instituted in 2004, HSAs allow for tax-deductible contributions and tax-free distributions, provided the distributions are used for qualified medical expenses. With an HSA, you have greater flexibility and discretion over how you use your healthcare dollars. You can choose to spend the funds today or build them for the future. The funds roll over from year to year. Tax-free withdrawals can be made to pay for qualified medical expenses incurred by the account holder, spouse, children and other dependents.
Who is eligible to establish an HSA?
Anyone under age 65 who is covered by a qualified high-deductible health policy can open an HSA. You cannot be covered by another health insurance policy that is not a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long-term-care policies.
How much can I contribute to an HSA?
In 2009, you can contribute up to $3,000 for individual coverage or $5,950 for family coverage. You can now contribute up to the maximum amount allowed no matter how much your deductible is and when the high deductible plan is effective. People age 55 and older can also make an extra catch-up contribution of $1,000 in 2009.
How often can I contribute? Is there a deposit limit for each contribution?
You can contribute as often or as much as you wish; as long as your total contribution for the year does not exceed the limits specified by the IRS.
If I join an HSA mid-year, can I put in the full annual contribution allowed?
You are allowed to contribute the full annual amount to your HSA, regardless of when your account was established. However, if you start the year off with individual-only coverage and add a dependent to your high deductible plan part-way through the year, your contributions for the dependent will be pro-rated depending on the month that the dependent was added.
Can any high-deductible insurance policy qualify for an HSA?
In 2009, your health insurance policy must have a deductible of at least $1,250 for individual coverage or $2,500 (in network) for family coverage to qualify as an HSA-eligible policy.
Would I fund an HSA with pre- or post-tax dollars?
If your employer offers a high deductible health insurance policy, you may make pre-tax contributions, just as you would with a Flexible Spending Account. If you open an HSA on your own, contributions will be deductible when you file your taxes, even if you don't itemize.
Do the tax benefits phase out at certain income levels?
No. Unlike many other tax breaks, there aren't any income limits for HSAs.
Do contributions to an HSA affect my IRA contributions?
No. Your HSA contributions won't affect your IRA limits in any way. It's just another tax-deferred way to save for future medical expenses.
What is the difference between an HSA and an FSA?
There are similar tax benefits to the Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), but there are several differences. The biggest and most important difference is that the HSA balance can roll over from year to year and continue to grow tax-deferred. Money in an FSA must be spent by the end of the year or you lose it. Also, if you have an HSA, you can only have a limited FSA, which means that you can't use the funds in the FSA for dental or vision expenses (but you still save money with the tax deduction).
If I set up an HSA through my employer, what happens if I switch jobs?
The HSA account belongs to you, not your employer. You can keep the money in an HSA account even after you leave that job (similar to a 401K). Remember that you will have to pay a 10% penalty plus income tax if you use any of the money in the HSA for non-medical expenses before age 65.
How do I use the money in the HSA to pay my medical bills?
You can pay whatever the contracted rate is at the time of service by using your HSA bank's debit card (provided when you open an HSA account) or wait until you receive an Explanation of Benefits form your insurance carrier and pay the provider then (again, using the debit card or by writing a check). As with any other bank account, you must have sufficient funds in your HSA to cover the expense.
Can I use the funds in the HSA to pay for other services or items?
Yes. Over the counter medications and medically-related products (including headache medicine, cough medicine, allergy medicine, etc), dental treatment, vision care services and products, chiropractic care and other expenses as allowed by the IRS are qualified medical expenses that can be paid for using your HSA. These expenses will not go towards meeting your deductible or out-of-pocket maximum for your health plan.
Can I choose my own doctor?
Yes. An HSA is the antithesis of an HMO. With an HSA, you are free to use any doctor and any hospital you choose. Under pricing schemes employed by most insurance companies that offer the HSA-qualified plans, significant savings are available to you for choosing to participate in a PPO (preferred provider) network. The available networks offer a wide variety of physicians and service providers at discounted rates.
Why doesn't it make more sense to pay higher health insurance premiums to have smaller deductibles and co-pays for doctor visits and prescriptions?
HSAs may not be right for everyone, but for many people, they make the most sense financially. If you are in relatively good health, consider the fact that you can't recoup the amount of money you pay in health insurance premiums unless you have an unfortunate and catastrophic claim.
For example, assume an average family (both adults in their early 40s with one child) pays a monthly premium of $550, which is $6,600 per year. If the family has three doctor visits during the year at $100 each ($300 total) plus four prescriptions at $50 each ($200 total), that's a total in billable medical expenses for the year of $500 (what the insurance company will pay).
Assuming the co-pay for each doctor visit (3) and each prescription (4) was $20, that's a total in co-pays of $140 (7 x $20). When you subtract the total bills from the co-pays, you get a total of $360. What this means is that this family has paid $6,600 in premiums to an insurance company that handles the paperwork but ultimately only pays $360 in total bills on behalf of the family.
Have more questions about Health Savings Accounts?
Call us. We can help.
Michelle B. Shulman, CPA is a Senior Manager in the Tax Services Department. Her primary focus is providing tax planning, projections and compliance services for family-owned and emerging businesses. Michelle helps business owners make sound, tax-efficient decisions to keep them on track for the future growth and success of their companies. In addition to traditional tax services, Michelle provides valuable advisory services to business owners, including executive compensation planning, accounting system analysis, financial forecasting, and implementation of effective cash management systems. With a thorough understanding of owner-operated businesses, Michelle also serves as a liaison for financial planning and investment advisory services to ensure that owners have the best possible financial foundation for ongoing operations and, eventually, a secure retirement. Contact her directly via email at mshulman@daszkalbolton.com or by phone at 561.953.1515.
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