Health Savings Accounts Need Not Remain a Mystery By Gerry Hatler EvergreenBank - CEO

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Federal Legislation that Created Health Savings Accounts (HSAs) was Passed in Late 2003

This means 2005 is the first year most employees can take advantage of these revolutionary new vehicles.  Now that HSAs are here, employees need to choose a qualified financial custodian to hold their money.  The question is how to choose an HSA custodian or trustee to partner with and make the HSA work best for you.

HSAs Defined

An HSA is a special account owned by an individual used to pay for current and future medical expenses.  An HSA works with a high-deductible health plan.  A high-deductible health plan has a deductible (the amount you must pay out of your pocket first before the plan starts paying anything) of at least $1,000 per individual or $2,000 per family.  HSAs work with high-deductible health plans by paying for health-care expenses before the medical plan takes over.

For example, a typical individual can contribute a maximum of $2,600 for 2005, while a typical family can contribute $5,150.  These contributions can be made as a lump sum or periodic contributions.  Depending on age or time of enrollment, you may be eligible to contribute more.  Check with your tax advisor for specifics. Additionally, a great feature of HSAs is that anyone (employer, family member, etc.) can contribute to your HSA.

The money that goes into an HSA is pre-tax and is not taxed when it's used for qualified health-care expenses.  Besides saving taxes, proponents also note that HSAs have other benefits.

For example, amounts that are not used in a year are carried over to the next year.  Earnings on contributions are also tax-free as long as they are withdrawn to pay for qualified health-care expenses.  In addition, the individual controls how HSA money is invested and decides what expenses to pay from the account.

Business owners and self-employed professionals may realize lowered health-care premiums and tax savings as a benefit of offering a High Deductible Health Plan (HDHP).

With all that said, here are keys to making an HSA work for you.

• You have easy access to the money in your HSA account.  Accounts are owned by the individual, not the employer.  As a result, you should be able to tap into your HSA account in several ways without any complications or delays.  For example, your financial custodian might provide you with an ATM card, debit card or paper checks to draw against the account.
  
  
• There are low minimum payment limits.  You want to be able to get money out of your account without having to meet a large minimum withdrawal requirement.  A minimum limit of $10 per withdrawal is reasonable.
  
  
• There are low fees and costs associated with an HSA account.  The Internal Revenue Service, which writes the HSA rules, allows trustee or custodian fees to be reasonable, and those fees can be paid directly from the HSA account.  These fees and expenses can also be paid directly by the participant without being counted toward the HSA contribution limits.  Because financial institutions will be competing for your HSA dollars, compare the costs associated with having an account.
  

You'll want to know if there are fees for low balances, what the annual costs are, and what other account fees are charged.

• There are adequate investment options.  Because most of the money in an HSA is intended for short-term goals, you may not want to take much risk with your account balance.  However, you'll want to make sure you have some investment options for your account.  You should have at least a mixture of safe options for the first few years and perhaps other riskier options for later when your account balance grows.
  
  
• HSAs are new for everyone, and you may have questions about your account.  Make sure that the bank, credit union or insurance company you use has customer service people available to answer your questions.  They won't be able to provide tax or investment advice, yet well-trained customer service people should be able to answer basic questions about your HSA account.
  

It's important to find an HSA administrator that can provide customer service, convenient account access, and straightforward pricing, all in one package.  This allows you to get the most out of your HSA dollars, while making your account easy to manage.  While HSAs might be new, it's easy to see the potential for financial growth and continued tax benefits for anyone utilizing this new and exciting product.