Q.
What is a Health Savings Account?
A. An HSA works like an IRA,
except that money is used to pay health care costs. Participants
enroll in a relatively inexpensive high deductible insurance plan.
Then, a tax-deductible savings account may be opened to cover current
and future medical expenses. The money deposited, as well as the
earnings, is tax-deferred. The money can then be withdrawn to cover
qualified medical expenses tax-free. Unused balances roll over from
year to year.
Q.
Who can qualify?
A. Everyone (not just
self-employed or small businesses) with a qualified high deductible
insurance plan will be eligible for a tax-deductible HSA.
Q.
How does and HSA Work?
A. You obtain coverage under a
qualified high-deductible health insurance plan. Each year you deposit
the money you saved on lower premiums into a tax-favored savings
account. You use the savings account to pay for your deductible with
tax-free dollars. Once you meet the deductible, the insurance starts
paying for your medical expenses. Any money left over at the end of
the year is yours to keep.
Q.
What is the difference between a Medical Savings Account and a Health
Savings Account?
A. HSAs are a significant
expansion of the current MSA program. Unlike MSAs, HSAs provide the
following:
-
Everyone
with a qualified high deductible plan is eligible to participate
(includes all size employers, the self-employed, individual and
families who are not self-employed)
-
HSAs
can be funded by the employer, employee or combination of both
within the same calendar year
-
HSAs
are permanent and portable
-
Larger
tax-deferred contributions to custodial accounts
-
There
are broader deductible ranges
Q.
What is a high deductible insurance plan?
A. For 2004, a high deductible
insurance plan is a health plan with a minimum deductible of
$1000 for self-only coverage and $2,000 for family coverage. The
maximum out-of-pocket expenses for allowed costs must be no more than
$5,000 for self-only coverage and no more than $10,000 for family.
Q.
HSA law allows for lower deductibles than MSAs. When will those
deductibles he available from insurance carriers?
A. Initially, insurers will
offer their current MSA deductible plans. Expanded deductibles and
coinsurance options will be available by mid-year from most carriers.
Q.
When will my health insurance carrier start offering HSAs?
A. Carriers who are currently
offering MSA compatible high-deductible plans will offer Health
Savings Accounts effective January 1,2004.
Q.
Will current MSA administrators offer HSA custodial accounts?
A. Yes.
Q.
What will happen to Medical Savings Accounts effective January 1,
2004?
A. MSAs are scheduled to sunset
(end) December 31,2003. Existing MSAs may continue under the current
rules. Effective January 1, 2004, those who would have qualified for
an MSA will now qualify for an HSA.
Q.
Can a Medical Savings Account he rolled into a Health Savings Account?
A. Yes. MSAs can be rolled into
HSAs on a tax-free basis, but it is not necessary. If, however, a
client chooses to participate in the new HSA contributions limits and
deductibles he/she must complete an HSA Adoption Agreement. Those
clients choosing not to roll their MSA to an HSA at this time
will receive information from from their plan administrator by the end
of the first quarter of 2004 to facilitate a smooth migration from MSA
to HSA.
Q.
Can existing MSA plans participate in the new HSA program (i.e. expand
the contribution amounts)?
A. Yes. Clients can participate
in the new HSA program as long as they complete the new HSA Adoption
Agreement. If MSA clients do not choose to change the deductible,
coinsurance limits or contribution amounts, they do not have to do
anything. (See question above.)
Q.
What are the new maximum contribution limits? '
A. Annual contribution limits
for 2004 are capped at either the high deductible plan deductible or
$2,600 for individual or $5,150 for family - whichever amount is less.
Q.
What if a client isn't sure they want an HSA?
A. If at the time of sale, a
client feels he/she may want an HSA account sometime in the future,
but doesn't want to fund it right now, the best practice is to set up
the account immediately. The client doesn't need to fund the account
right away. In this situation, the client can complete an HSA Adoption
Agreement now and decide on funding the account later.
