Health Savings Account Blog                  

November 04, 2008

Health Savings Accounts on Election Day

It has been reported by the CDC's National Health Information Survey (NHIS) that consumer-driven healthcare and Health Savings Accounts has reached the "tipping point" of 20 percent of the under-65 population. Consumer empowerment is about taking money away from third-party payers and putting it in the hands of consumers to spend as they wish. It is much more efficient to pay small claims directly rather than have insurance pay them, and the opportunity to save money changes the behavior of the consumers.

The consumer shops price, service, and quality more, which causes healthcare providers (medical clinics, pharmacies, etc.) to compete harder for those customers by offering more competitive pricing, more convenient hours, and better service. The consumers also become better educated, and are less likely to waste money than when someone else is paying the bill.

Now that 20 percent of the population has a Health Savings Account, we will begin seeing a profound effect on the delivery of healthcare. Every doctor, hospital, and pharmacy will have a fair number of patients paying cash, and will need to respond accordingly. Changes in our healthcare system are certainly coming, but no matter who gets elected, Washington will have a difficult time slowing down the growth of Health Savings Accounts. This is a great thing, because it is really the only long-term solution that will control costs, while also providing individuals with the freedom and ability to access high-quality healthcare that meets their needs.

In the mean time, the tremendous amount of government spending and debt will put pressure on the next candidate to raise taxes, despite the promises of both leading candidates to cut taxes. Everyone who is smart about managing their money should open and fund an HSA today, as one way to shelter current income and the growth of that investment from the reach of government tax-collectors.

Have a great week, and go out and vote today!

Posted by Wiley Long at 12:08 PM | Comments (0)

October 01, 2008

Stop Attacking Health Savings Accounts

To get a clearer picture of the competing visions for health care reform, Americans need to look no further than the surgery some in Congress want to perform on patient choice. The disagreement, in Washington as well as on the campaign trail, is about whether consumers ought to have more or less say in their own health care.

Some pre-op background: As part of the Medicare Modernization Act of 2003, Congress created Health Savings Accounts. The idea was to give patients an affordable alternative to the high insurance premiums of traditional "first-dollar" coverage.

Health Savings Accounts allowed consumers to choose a low-premium insurance option they could couple with a pre-tax savings account to cover "qualified" health expenses.

Of course, no serious health policy analyst believes Health Savings Accounts are a panacea for all that ails America's health-care system. But the accounts were a welcome step in the direction of patient-centered health reform.

More than 6 million Americans are enrolled in HSA-eligible health plans. And the popularity of these plans is growing, in no small part because patients can determine how much of their money to spend today, or save for tomorrow, for health care expenses. In short, Health Savings Accounts allow patients to make prudent decisions for themselves.

Yet some in Congress see Health Savings Accounts differently. These critics don't trust consumers to manage their own money. For them, patient-centered health care is either "too hot" or "too cold."

Here's how this Goldilocks Theory works:

The critics first say account balances are too low to cover the higher deductibles carried by low-premium health plans. They object that patients aren't protected from catastrophic expenses or might decide to forgo necessary care.

Yet these same critics proceed to argue HSA balances are too high because patients are saving too much. They say the money isn't going toward health care today and the accounts are merely tax havens for the wealthy.

So are account balances too low or too high? And what amount is "just right"?

HSA detractors in Congress don't know these answers. But for some reason they seem to think politicians, insurance companies and policy nerds are better suited to call the shots on how you spend your money. This reasoning reflects an underlying assumption that patients can't be trusted to effectively control their own health-care decisions.

But the congressional critics know better than to put their cards on the table. So rather than attack Health Savings Accounts directly, they create a diversion over account balances.

The House of Representatives has passed a measure requiring consumers to "substantiate" in advance that withdrawals from their Health Savings Accounts are made for "HSA qualified medical expenses." The Senate, which hasn't yet discussed it, should recognize the folly of this approach.

Why subject patients to more burdensome government regulation that adds paperwork, drives up administrative expenses and makes the accounts less desirable?

HSA opponents contend patients are under no obligation to use withdrawals -- their own money, remember -- for health care. This is a distraction, not a real concern. At least 90 percent of account funds go toward qualified medical expenses, according to the Government Accountability Office.

And our friends at the Internal Revenue Service deem misuse of HSA funds to be illegal, meaning account holders are already subject to oversight. There's nothing illegal about a consumer spending money on "unqualified" expenses, either, so long as he pays taxes on that amount.

The real reason Health Savings Accounts are under the knife of the critics? Some in Congress are at ideological odds with patient-centered health care. The dispute shows, yet again, they want to preserve and protect the worst features of the status quo.

Posted by Wiley Long at 09:53 AM | Comments (0)

September 09, 2008

IRS Clarifies Questions About Health Savings Accounts

New Internal Revenue Service guidance that answers dozens of questions employers have raised about health savings accounts will further boost the booming Health Savings Account market, experts say.

The much-anticipated guidance resolves everyday issues that include whether employees receiving services from on-site corporate medical clinics are eligible to open Health Savings Accounts, what employers can do when they mistakenly make a contribution to an employee’s Health Savings Account, whether Health Savings Account debit cards can be coded to pay only medical expenses and when Health Savings Account funds can pay Medicare Part D premiums.

“The good news is that we have gotten answers to a lot of questions,” said Karen Frost, a consultant with Hewitt Associates.

By resolving so many issues, experts say the guidance will speed up employers’ already rapid adoption of HSA-linked consumer-driven health-care plans. Enrollment in HSA-linked high-deductible health insurance plans climbed to 6.1 million as of Jan. 1, a 35% increase from a year earlier, according to America’s Health Insurance Plans, a Washington-based trade group.

“Some employers were reluctant to put in the arrangements until they had, in black and white, answers to questions that had been raised,” said Sharon Cohen, an attorney with Watson Wyatt Worldwide.

“This will be another boost to Health Savings Account growth,” said Andy Anderson, of counsel with Morgan Lewis & Bockius in Chicago.

Experts concur that the biggest issue addressed by IRS Notice 2008-59 involves on-site clinics. Such clinics have proliferated in recent years for a variety of reasons, including corporate belief that care can be delivered at a lower cost in a clinic compared with physician offices and other medical settings while reducing how long employees receiving care must be away from their jobs.

The interaction of clinic cost-sharing features and HSA eligibility requirements was unclear until the new guidance was issued. Under federal law, Health Savings Accounts must be linked to high-deductible health plans, with employees being subject this year to deductibles of at least $1,100 for individual coverage and $2,200 for family coverage.

And since many on-site clinics provide services at little or no cost to employees, many employers were uncertain if those low cost-sharing requirements would make employees ineligible for Health Savings Accounts.

The IRS answer is that employees’ HSA eligibility is unaffected by access to free or low-cost care at on-site clinics as long as the clinic does not provide “significant” medical benefits. Annual physicals, immunizations, allergy injections, non-prescription painkillers and treatment of on-the-job injuries would not be considered significant.

The breadth of services allowed without running afoul of the HSA cost-sharing requirements “gives the green light to a lot of on-site clinic” arrangements, said Jay Savan, a principal with Towers Perrin.

On the other hand, employees with access to on-site corporate clinics that provide extensive services at little or no cost would lose HSA eligibility. The IRS, in its guidance, provides a specific example: a hospital that allows its employees to receive care at its facilities for all of their medical needs at little or no cost.

“In short, the care provided can’t be too comprehensive,” said Watson Wyatt’s Ms. Cohen.

Still, the IRS has not fully resolved the on-site clinic-HSA eligibility issue, she said, noting there can be arrangements that fall between the IRS-provided examples of a design that passes muster and another that does not. “What if you are in between the examples? How much care is too much? There still is some vagueness, but at least some guidance has been provided.”

Among numerous other issues, the guidance makes clear that an employer can try to recover contributions it mistakenly made to an employee’s HSA. In that situation, the employer could approach the financial institution holding the money to ask for return of the funds. If that effort was not successful by the end of the year in which the contribution was made, the employer could include the amount as income on an employee’s W-2 statement.

The guidance also addresses another issue: Can employers provide HSA enrollees with debit cards that are coded to allow payment only of health-care expenses? The issue arose because federal law allows enrollees to withdraw funds from their Health Savings Accounts for any purpose, though they are taxed and the employee is hit with a 10% penalty tax for distributions not related to health care if the employee is under 65.

Resolving the issue, the IRS said restricting debit card payments to health-care expenses would pass muster as long as enrollees can access their HSA account through online transfers, withdrawals from automatic teller machines or writing a check. Even before the latest guidance, though, some vendors were limiting debit card use to qualified medical expenses.

“You are OK if you provide access to account funds through other means,” said Kathy Klug, director of compliance with Affiliated Computer Services in Minneapolis.

The guidance also makes clear that so long as an HSA enrollee is at least 65, the enrollee can withdraw funds from the HSA to pay for Medicare Part D prescription drug premiums. However, if the enrollee is younger than 65 and has a spouse older than 65, the spouse’s Medicare Part D premiums would not be considered eligible medical expenses, and distributions used for that purpose would be included in the enrollee’s taxable income.

Posted by Wiley Long at 05:03 PM | Comments (0)

August 27, 2008

IRS Releases Health Savings Account Comparability Rules

The IRS has issued final regulations on how employers can comply with the comparable contribution requirements for Health Savings Accounts where an employee has not established a Health Saving Account by December 31st or an employee has not notified the employer that he or she has established a Health Savings Account. The regulations also address the acceleration of employer contributions for the calendar year for employees who have incurred qualified medical expenses exceeding the employer’s cumulative Health Savings Account contributions at that time. The final regulations adopt the provisions of the proposed regulations without substantive revision.

Employee has not established HSA by December 31

The final regulations provide a means for employers to comply with the comparability requirements with respect to employees who have not established an Health Savings Account (HSA) by December 31, as well as with respect to employees who may have established an HSA but not notified the employer of that fact. To comply with the comparability rules for a calendar year with respect to such employees, the employer must comply with a notice requirement and a contribution requirement.

The final regulations also address the acceleration of employer contributions to employees’ Health Savings Accounts. For any calendar year, an employer may accelerate part or all of its contributions for the entire year to the Health Savings Accounts of employees who have incurred, during the calendar year, qualified medical expenses exceeding the employer’s cumulative HSA contributions at that time.

The regulations affect employers that contribute to employees’ Health Savings Accounts. The regulations are effective on April 17, 2008, and apply to employer contributions made for calendar years beginning on or after January 1, 2009. However, employers may rely on this guidance beginning on or after April 17, 2008.

You can read the report at: http://www.ustreas.gov/press/releases/reports/hsa_comparable_contributions_4830.pdf

And you can find more government information on Health Savings Accounts at: http://www.health--savings--accounts.com/gov-info.htm

Posted by Wiley Long at 03:40 PM | Comments (0)

August 13, 2008

Georgia Approves Health Savings Account Reforms

Gov. Sonny Perdue signed Senate Bill 383 and House Bill 977, which will make High Deductable Health Plans paired with Health Savings Accounts more affordable and available in Georgia.

House Bill 977 exempts insurers from state premium taxes for the sale of high deductible health plans with a Health Savings Account, while allowing consumers to deduct from state income taxes an amount equal to premiums paid for their Health Savings Account insurance plan.

The new legislation will affect mostly the self-employed and small business employees by providing a $250 annual tax credit for small business employers that spend at least $250 annually to enroll their employers in an HSA plan.

Senate Bill 383 compliments House Bill 977 by adding two provisions. First, Health Reimbursement Accounts (HRA) are accounts that employers may set up for employees that allow the employee to use pre-tax dollars to pay for health expenses, including health insurance. The bill states that HRA-only plans that are not sold with or packaged with individual health insurance policies are not insurance. Second, HSA plans must comply with the consumer choice option under current law. This means the insured will be able to choose any willing provider, as long as the insured pays any increase in premiums and cost.

"This legislation encourages more consumer choice by making quality, affordable health-care coverage more available," Perdue said. "More insured citizens means lower costs for all taxpayers, and preventative care means a healthier population. It will also allow small business owners to provide low cost health insurance to employees and their families."

Learn more about Health Savings Accounts at: http://www.health--savings--accounts.com

Posted by Wiley Long at 10:08 AM | Comments (0)

August 07, 2008

IRS Raises Heath Savings Account Contribution Limits

The IRS and Department of Treasury have elevated the ceiling for contributions to tax-deductible Health Savings Accounts.

By increasing maximum Health Savings Account contributions for 2009, the IRS and Department of Treasury have made it more attractive for individuals and employers to consider Health Savings Accounts when looking at health insurance options. Money contributed to a Health Savings Account is tax-deductible, and can be used to pay qualified medical expenses tax-free.

The contribution limit has been raised to $3000 for individuals and $5950 for families.

New contribution limits for 2009 are $3000 for families and $5950 for individuals. This is up from 2008 limits of $2800 for individuals, and $5800 for families. Individuals who are 55 or older are also allowed to make up to an additional $1,000 in 2009 in "catch up" contributions.

America's Health Insurance Plans (AHIP) data shows that enrollment in high-deductible health plans eligible to be tied with Health Savings Hccounts grew to 6.1 million in 2007, growing fastest in the small group market.

The higher contribution limits make Health Savings Accounts an even better value than before, which will no doubt just accelerrate the movement towards these types of plans. Not only are HSA-qualified health insurance plans less expensive, but the tax-deduction really makes them a no-brainer, particularly for people who are paying for some or all of their own health insurance costs.

Health Savings Accounts are similar to Individual Retirement Accounts (IRAs). The account is owned by the individual HSA holder, it is portable and is not dependent on continued employment with a particular employer, and money in the account grows tax-deferred. The big advantage over an IRA is that only with an HSA can money can be withdrawn from the account tax-free to pay for qualified medical expenses.

Most of our customers keep enough of their HSA money to cover their deductible in an easily accessible savings account. As their savings grow, they'll usually invest additional HSA funds in mutual funds or other investments with larger growth potential.

Individuals have until December 1 to obtain a qualifying high-deductible health plan in 2008 if they wish to take the deduction on 2008 taxes. Contributions can be made as late as April 15th.

The recent HSA contribution increases announced by the Internal Revenue Service means that policy holders can get an even larger tax deduction when maximizing their HSA contribution. This change will make these plans even more attractive as millions of people continue to transition from conventional co-pay health insurance plans, to high deductible HSA-qualified plans.

Posted by Wiley Long at 03:14 PM | Comments (0)

July 09, 2008

Defending Health Savings Accounts

Greg Scandlen of Consumers for Health Care Choices set the record straight on Health Savings Accounts in his recent testimony to the Health Subcommittee of the Ways and Means Committee of the US House of Representatives. Given that this is the very committee trying to destroy Health Savings Accounts for honest Americans, his remarks are especially timely.

Here's an excerpt from his testimony:

...Most of what you have been told in the testimony to date is either mistaken, based on suppositions or surveys of uninformed people, or simply irrelevant to Health Savings Accounts. For example –

* You were told that lower-income people cannot afford the out-of-pocket responsibility that comes with an HSA. You were not told how those same people could afford the higher premiums that are required to avoid that cost. In fact, money that is paid to an insurance company for first-dollar coverage is money that is lost forever. Lowering the premium and using that saving to pay directly for services gives the low-income consumer a chance to save money that would otherwise be lost.

* You were told that the tax break associated with Health Savings Accounts is unprecedented and a boon to the "wealthy." In fact, the tax treatment of Health Savings Accounts is precisely the same tax treatment afforded to employer-sponsored health insurance. Premiums are untaxed and benefits are untaxed. It is true that the "wealthy" get a larger tax benefits than the unwealthy, but that is the case for employer-sponsored comprehensive coverage as well as for Health Savings Accounts. Further, the opportunity to save, say, $2,000 a year that would otherwise go to an insurance company is of far greater benefit to the low-income worker who earns $20,000 a year than to the wealthy executive who makes $200,000, regardless of the tax treatment.

* You were told that "the sick" do not benefit from Health Savings Accounts because of the higher out-of-pocket responsibility. In fact, both the healthy and the sick have less out-of-pocket exposure with an HSA, a point that was well documented in a recent Health Affairs article. In fact, Health Savings Accounts limit a patient's out-of-pocket exposure, something that is not true for the Medicare program, for instance.

* You were told that most health care spending takes place above the deductible associated with an HSA, so they will not have "a significant effect on overall spending." This is probably true, but irrelevant. Health Savings Accounts are having a profound effect on lower-cost routine spending and that is significant by itself. Other strategies are needed for high-cost services with or without an HSA.

* You were told that many people with a high-deductible health plan do not open up an HSA. That, too, is true but irrelevant. The HSA itself is attractive for those people who are able to get a tax benefit from passing their direct payments through the account. Other people, especially those who pay no income taxes, may find it more suitable to simply pay cash at the time of services or to keep their funds in some other, non-HSA, account. Further, there is likely to be a lag time between the point of enrollment and opening up that account. This is not a problem.

* You were told that some people who have to pay directly for care or for prescription drugs may fail to do so to save the money. That also may sometimes be true. But there is never any guarantee that people will always fill their prescriptions and take their medications regardless of the financing scheme. In fact, we know that many health conditions are caused or aggravated by patient behavior under all health insurance systems. But, to the extent that people with an HSA are more knowledgeable and more invested in their own care, their compliance will be better than it is for other benefit programs. And that is precisely what we are seeing in the market.

Given that Health Savings Accounts are becoming increasingly popular (with over 6 million Americans currently enrolled, an increase of 35% from last year), it's important that lawmakers understand the tremendous benefits they offer for Americans seeking the best value for their health care dollar.

Let's just hope that the committee was listening closely!

Posted by Wiley Long at 09:15 AM | Comments (0)

June 27, 2008

Is Congress Messing with Your Health Savings Account

In April, House Democrats passed legislation that would impose onerous and unnecessary reporting requirements on people with tax-free Health Savings Accounts. As of January, more than 6 million Americans have Health Savings Account coverage. That includes nearly 640,000 Californians, or about 3 percent of all Californians under age 65. In other states, Health Savings Account qualified insurance plans cover nearly 1 in 10 people under age 65.

Current law requires Health Savings Account holders to document their withdrawals in the event of an IRS audit. The new legislation would require every Health Savings Account holder to document every HSA-qualified withdrawal, every time they file their taxes.

Some politicians just don't want workers to control their own earnings and have launched an all-out assault on Health Savings Accounts. That's right: Congressional Democrats are trying to find a way to make Americans' medical bills and tax returns even more complicated.

Led by Health Subcommittee Chairman Pete Stark, D-Calif., supporters claim the legislation seeks only to prevent people from claiming a tax break for nonqualified expenses. Stark cites reports that "HSA funds appear to have been spent on escort services, at casinos and bowling facilities."

Yet Congress' own Government Accountability Office found that 90 percent of HSA withdrawals are applied directly to qualified medical expenses. Even if the remaining 10 percent were spent at brothels and bowling alleys, federal law does not require funds contributed to an HSA to be used only for medical care. It requires only that withdrawals not exceed qualified medical expenses, or that the account holder pay taxes and a penalty on any excess withdrawals.

In either case, random audits police compliance. More importantly, HSA critics haven't produced any actual evidence of unlawful withdrawals.

The real reason for the anti-HSA legislation lies elsewhere.

The federal government has traditionally offered workers a large tax break for job-based health benefits. In practice, however, that tax break effectively robs you of control over a large chunk of your earnings: the money your employer puts toward your health insurance. For the average insured family, that's about $9,000 per year. The law also robs you of control over your coverage decisions.

In 2004, Congress extended that tax break to employee-owned Health Savings Accounts, enabling workers to reclaim ownership of a portion of those earnings.

If a family obtains a high-deductible health plan, he or his employer can contribute as much as $5,800 to an HSA, tax-free. The family owns the account, which stays with them from job to job. So long as they spend that money on medical care, HSA funds are never taxed. Otherwise, HSA rules are identical to those for traditional IRAs.

Some politicians just don't want workers to control their own earnings and have launched an all-out assault on Health Savings Accounts.

Last week, Stark complained, "The total value of all Health Savings Accounts contributions reported to IRS in 2005 was about twice that of withdrawals, suggesting an interest in it more as a shelter than vehicle to obtain needed health care or supplement inadequate coverage."

Stark is shocked — shocked! — that workers are using their Health Savings Accounts as... a savings vehicle.

Stark further alleges that Health Savings Accounts "are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers."

True, Health Savings Accounts provide a tax break that gets more valuable as earnings rise. (That's because income tax rates rise with income.) Yet the tax break for employer-controlled coverage provides identical tax breaks to millions more high-income earners. Where is the outrage over that tax loophole?

HSA opponents offer no evidence that unlawful HSA withdrawals are a serious problem, and they can't say why random audits aren't enough to deter them. They are highly suspicious when Americans take money out of their Health Savings Accounts — but equally suspicious when they leave it in. And tax breaks for the wealthy appear to be kosher, unless they let workers control their earnings.

All of which leaves Stark and his fellow travelers open to the charge that what really bothers them is the fact that Health Savings Accounts let individuals control their own money.

Posted by Wiley Long at 09:31 AM | Comments (0)

June 25, 2008

Many Health Savings Account Owners Make IRA Transfer

Eligible individuals can now make a one-time tax-free transfer of individual retirement account (IRA) funds to start a Health Savings Account (HSA) under the guidelines set down in IRC Sec. 223. Under the amendment, employees can use what was originally in their IRA to pay for medical benefits without having to pay for the 10% additional tax under IRC Sec. 72(t).

The legislation also allows you to use of existing funds in your IRA as a source of tax-free contribution to your existing Health Savings Account.

There are many benefits of this strategy. It makes a lot of sense to transfer money from your IRA to your HSA, particularly if you don't have enough cash on hand to fully fund it for the year. Once that money is transferred the HSA, you can spend it on medical expenses without ever being taxed on the money. This is a tremendous financial benefit.

The owner of an HSA is also eligible for a second transfer within the same taxable year if he has a self-only high deductible health plan (HDHP) during the period of the IRA transfer, and within that same period purchases family HDHP coverage. The fund distribution remains tax-free. This strategy has been very popular with our customers. This is a great provision for someone who wants to get their account fully funded, so they know they've got the money to cover a deductible. That way, they can carry a higher deductible, lower-priced health insurance plan.

There are several conditions for eligibility for the tax advantages under the 2006 amendment. The individual making the transfer must remain eligible within 12 months of the IRA to HSA funding distribution, referred to as the "testing period." If within that period, the individual becomes ineligible, then the transferred amount will be subject to the usual income taxes. Furthermore, the amount transferred will be deducted from the maximum allowed HSA contribution for that year.

Having money from an IRA work for immediate medical needs frees up some funds that would otherwise go to tax payments. The value of an HSA is especially high when the account holder is still productive, to stave off the pressures of high taxation and rising medical care costs.

Transferring funds from an IRA to an HSA enables individuals to reduce their potential tax liabilities, and to also lower their health insurance premiums by switching to higher deductible plans.

Learn more about Health Savings Accounts at: http://www.health--savings--accounts.com

Posted by Wiley Long at 02:44 PM | Comments (0)

June 15, 2008

How Health Savings Accounts are Taxed

Contributions by an individual to a Health Savings Account are deductible in calculating the individual's adjusted gross income (AGI) (that is, they are above-the-line deductions), whether or not he or she itemizes deductions. If an employee makes contributions to a Health Savings Account in the form of pretax salary reductions under a cafeteria plan, they are excluded from income for purposes of federal income and employment taxes. Contributions made by a family member to a Health Savings Account on behalf of an individual are also deductible in determining the individual's AGI, whether or not he or she itemizes deductions.

Hal's wife has given birth to twins and is no longer working. To help out, Hal's father contributes $500 to Hal's Health Savings Account (HSA). Hal can deduct the $500 on his own tax return, even though the money came from his father.

Employer contributions to an HSA on behalf of an employee are treated as employer-provided coverage for medical expenses. They are excluded from the employee's income for purposes of income and employment taxes and are deductible by the employer.

Distributions

In general, an HSA participant may withdraw funds from the HSA at any time for any purpose. This contrasts with FSAs and HRAs, which only allow reimbursements for medical expenses. However, the use of HSA distributions, as well as the age of the participant and some other circumstances, determines how the money is taxed. Distributions used exclusively to pay for qualified medical expenses of the participant, or of his or her spouse or dependents, are excluded from gross income (that is, tax-free). On the other hand, any distribution or portion of a distribution not used exclusively to pay for qualified medical expenses is included in the participant's gross income and subject to an additional 10 percent penalty tax.

Molly has accumulated $6,000 in her HSA. She incurs $1,500 of dental expenses not covered by insurance, and she uses money from her HSA to pay them. Because this money is spent on qualified medical expenses, it is tax-free. Roger also has $6,000 in his HSA. He needs $1,500 to help cover college expenses for his daughter Becky. Roger can take this money from his HSA, but because he is not using it for qualified medical expenses, he must include it in his gross income and pay an additional $150 in penalty tax (10 percent of $1,500).

An exception applies to those 65 and older. Although Health Savings Account distributions not used for HSA qualified medical expenses are included in their income, such distributions are not subject to the 10 percent penalty tax.

Charlie, age 67, contributed to an HSA for several years before his retirement, and his account now holds $7,000. Charlie faces a series of expensive repairs to his home, and he withdraws $2,500 from his HSA to help pay for them. This money must be included in Charlie's income because it is used for nonmedical purposes, but since Charlie is over 64 he does not have to pay the 10 percent penalty tax.

To learn more about Health Savings Accounts, visit: http://www.health--savings--accounts.com

Posted by Wiley Long at 05:30 PM | Comments (0)

June 06, 2008

Using Your Health Savings Account for Retirement

Many individuals are now using Health Savings Accounts as a way to supplement their traditional retirement accounts, such as 401ks. A Health Savings Account (HSA) allows users to pay for health related expenses, such as office visit copays, deductibles, and medication. Users can also use the accounts to save for future medical expenses, premiums for health insurance, or even Medicare premiums.

In order to participate in an HSA, a person must be covered by a high-deductible health plan (HDHP), which is a type of insurance plan that typically has lower premiums than a traditional plan, but has a much higher deductible.

The current maximum contributions for 2008 are $2,900 for individuals and $5,800 for families and this is done on a pre-tax basis. Money deposited in the account grows tax free and is not taxed when used for an eligible expense either. Health Savings Accounts differ from flexible spending accounts (FSAs) in that money in the account can accumulate over the years and is not required to be spent or lost each year. Health Savings Accounts offer a triple tax advantage and are also portable and not tied to a specific employer as with an FSA.

In terms of using an HSA as a source of retirement income, people 55 years of age and older are eligible to make catch-up contributions to their account. For 2008, an extra $900 is permitted, then $1,000 in 2009 and so on. Once the person hits 65, distributions from the account for non-medical related items are taxed as normal income would be. However, unlike an IRA, there are no mandatory age-related distributions from an HSA, so money can be allowed to grow indefinitely.

Learn more about Health Savings Accounts and how you can use the to supplement your retirement savings at: http://www.health--savings--accounts.com

Posted by Wiley Long at 03:25 PM | Comments (1)

May 11, 2008

HSA for America Opposes Health Savings Account Substantiation

HSA for America strongly opposes any proposal that would require substantiation of Health Savings Account withdrawal transactions or any radical change to the current administration of Health Savings Accounts.

Health Savings Accounts are a dynamic, consumer-friendly and increasingly popular health insurance product enjoyed by millions of Americans. Current law already requires individuals with an HSA to keep and supply receipts to the Internal Revenue Service when requested. It is the individual's responsibility to keep good tax records--through self reporting--just as they do with charitable contributions and other tax deductions.

Imposing substantiation rules on Health Savings Accounts will add enormous costs to Health Savings Accounts, which will inevitably be passed on to the consumer. One of the benefits of consumer-directed health care products like Health Savings Accounts is the removal of unnecessary overhead from the health care process, which has proven to lower administrative costs. Right now, 90% of HSA withdrawals are done electronically through a debit card, ATM or check. The same proportion (90%) of withdrawals from an FSA is done by paper/manually. Adding this new requirement would bring HSAs back into the world of paper/manual transactions thus increasing costs and making it more burdensome for the consumer.

HSA substantiation also fails to recognize that HSAs and Flexible Spending Accounts (FSAs) are inherently different products and should not be treated the same. The HSA is an individually owned account and FSAs are an employer group-owned account. Substantiation of FSAs currently benefits employers because they get to keep any unused funds in their employees' FSA accounts at the end of the year. However, unused funds in an HSA accrue for future health care expenses for the account holder.

Health Savings Accounts place significant responsibility with the account holder, which is an attraction for the beneficiary and the employer. Ironically, at a time when Congress is seeking to enhance the use of Health Information Technology to help reduce costs and improve quality, efforts to radically change the oversight and administration of Health Savings Accounts in such a way would be a giant leap backwards.

Requiring substantiation on HSA transactions is a bad idea that would lead to a significant decrease in electronic transactions, longer wait times for reimbursement for individuals and higher administrative costs. We look forward to working with Congress and the administration on making the cost of health care more affordable for all Americans (not less) because insuring more Americans is in everyone's best interest.

Posted by Wiley Long at 06:54 PM | Comments (0)

May 01, 2008

Aetna To Offer Health Savings Account Plans To Conn. Businesses

Aetna will begin offering individual health insurance policies to about 40,000 businesses and through 79 Chambers of Commerce in Connecticut, under an agreement with the Chamber Insurance Trust.

The arrangement is aimed at sole proprietors of businesses and workers who don't have insurance through an employer, and could help reduce the number of uninsured residents in the state, said Stephen Glick, administrator of the trust.

The trust is an alliance of chambers of commerce across Connecticut and Western Massachusetts, which was created in 1992 to combine their buying power for insurance.

The trust already offers employer-based health plans from ConnectiCare, and Medicare Advantage plans from Health Net.

Aetna will offer a variety of individual plans through the trust, including preferred provider plans (PPOs), high-deductible plans that are compatible with Health Savings Accounts, and an optional dental PPO. Aetna will also provide plans that combine preventive care and high-cost coverage, such as for hospital stays and outpatient surgery.

All of the individual plans are subject to medical screening to determine eligibility.

Posted by Wiley Long at 10:50 AM | Comments (0)

April 04, 2008

Not All Tax Preparation Software Can Handle Health Savings Account Deductions

Several Health Savings Account owners who file their federal taxes electronically are complaining that commercial tax-preparation software makes it difficult to take Health Savings Account deductions, and as a result some Americans are missing out on a key advantage of Consumer Driven Healthcare.

"A number of people have been frustrated in dealing with the software," says Grace-Marie Turner, president of the Galen Institute, a Washington, D.C.-based health and tax policy research organization. "I'm hearing from more and more people."

One senior Department of Health and Human Services (HHS) official, who asked not to be identified, says he was befuddled by Intuit Inc.’s TurboTax when he recently sat down for his annual taxpayer rite. He couldn’t find the prompt for a Health Savings Account deduction on TurboTax’s 1040 form.

“In prior years, the system logic just defaulted me to the form where I have spent a grand total of 30 seconds entering my information,” says the official. In frustration, he reached TurboTax’s technical support.

“When I asked him why they had changed their system logic, he told me that he didn’t know,” the official says. “When I pointed out that entering my contributions had saved me $900, but that there were likely taxpayers who didn’t understand that they would need to look for the form and would wind up overpaying their taxes due to TurboTax’s negligence, I was greeted with silence.”

Searching TurboTax’s help files, consultant and former White House health policy advisor Roy Ramthun found the answer — Health Savings Accounts are addressed under “misc. income” rather than “misc. deductions.” “I’m not sure why TurboTax would put it this way,” says Ramthun, of Silver Spring, Md.-based HSA Consulting Services. “I would think it would be more obvious that it is ‘misc. deductions.’”

Turner says that the problem is so widespread that companies have sent out bulletins to their employees instructing them how to handle the HSA deduction with TurboTax.

Electronic Tax Filing on the Rise

According to the IRS, more Americans file their federal taxes electronically than use old-fashioned paper. Problems with HSA deductions will likely increase in the future as growing numbers of taxpayers sign up for HSA-based health plans and file taxes electronically.

According to Mountain View, Calif.-based Intuit, Americans bought almost 9.4 million copies of this year’s TurboTax software.

Calls to H&R Block Inc., Jackson Hewitt Tax Service Inc., Liberty Tax Service and other tax-preparation services failed to reveal similar problems with HSA deductions.

H&R Block markets the other leading tax software product, Tax Cut. A company spokesperson denies that HSA-deduction problems have been reported with the product.

Bob Meighan, vice president of Intuit’s consumer tax group, says that TurboTax has received no complaints about the deductions and that detailed information about HSAs is readily available by searching on any TurboTax screen.

“This is the first I’ve heard about it,” he tells ICDC. “If people are having a difficult time, frankly I’m surprised. If you put in any logical term in the search window on every single screen, it will tell you exactly where you go. Whether you think it is income or a deduction, if you search it will be on the very first screen.”

Meighan says that TurboTax technical support staff are trained to help customers use the software but are not tax-preparation experts and shouldn’t be expected to know the particulars of every tax deduction. “If you ask the average American what an HSA is, they aren’t going to know either,” he says. “They don’t come up all that much.”

Intuit has no plans to overhaul TurboTax for next year, but is speaking with Ramthun and others stymied by the HSA deduction and may end up tweaking its product, Meighan says.

“We’re listening to the feedback,” he says. “If we need to break things out better, we’ll do it.”

Jackie Perlman, tax researcher with H&R Block’s Tax Institute, suggests that the novelty of HSAs and their inherent complexity are the root of the problem for tax preparation.

“Health savings accounts are still fairly new,” she says. “They are the marriage of two very complicated things — taxes and insurance.”

Pearlman says that one of the problems is that IRS forms and coding were adapted from the old-style medical savings accounts. “They are confusing,” she says. “Unfortunately, a lot of people could be missing out on a great deduction."

Posted by Wiley Long at 02:37 PM | Comments (1)

April 01, 2008

BearingPoint Predicts Rapid Expansion of Health Savings Accounts if Universal Health Coverage Programs are Adopted

BearingPoint, Inc., one of the world's largest management and technology consulting firms, released projections for the impact of the most widely touted health proposal across the presidential candidates' platforms - universal coverage - on multiple health constituents. Universal coverage as described in the presidential health platforms, is being applied in California and Massachusetts and requires coverage for all (or nearly all) residents through mandates or incentives, for insurance usually supplied through employers of all sizes.

In application, this would increase the offering of high-deductible health plans (HDHPs) and Health Savings Accounts (HSAs).

According to BearingPoint's forecast, the implementation of universal healthcare in the U.S. could further impact all health constituents, including increasing HSA projections beyond the current 2012 estimates of more than 20 million new accounts with more than $200 billion in assets.

Many of the presidential candidates are currently discussing the possibility of universal health coverage programs in some form. Most are mentioning plans that may parallel the state initiatives in California and Massachusetts, wherein the employer is required to offer coverage or pay into a pool for employees to secure such coverage. BearingPoint believes that this type of initiative would increase adoption of HDHPs (a.k.a. 'low-premium' health plans) as a primary coverage vehicle, enabling more people to open accompanying save/spend/invest accounts - HSAs. The increase in individual HSA accounts to more than 20 million and the growing trend of consumers paying out-of-pocket for medical expenditures are driving financial institutions to evolve. Insurers, banks, investment managers and card companies are seeking out new platforms, systems, practices and strategies to serve employers and consumers in their new healthcare spend/save/invest needs.

"Universal coverage programs could significantly change the way Americans navigate and manage healthcare, leading consumers to require new financial accounts and tools to effectively spend/save/invest funds related to healthcare services,' said Kirsten Trusko, practice lead of the BearingPoint's Banking Insurance Group. 'As they enter unfamiliar territory, financial institutions across the country will depend on new platforms and systems to support the products, services and tools developed for consumers."

The Company's views on the potential impact of universal healthcare program adoption, and therefore, multiplied HDHPs and Health Savings Accounts include the following:

Insurance Companies: A high percentage of the approximately 40 million uninsured Americans could be added to the commercial health insurance infrastructure, which is currently spending 30 percent of its revenue on administration due to outdated systems, poor interoperability and manual processes. Health plan providers may need to invest in revamped systems and processes to support the potential growth from the addition of 20 to 40 million more currently uninsured consumers.

Health Providers: Traffic flow in the emergency room (ER) could become more manageable as additional people become insured, thus seeking primary care through traditional options rather than overusing ERs for non-urgent care. This could result in a reduction of write-offs for accounts receivable by hospitals and other health providers. Additionally, the increased 'out-of-pocket' payments associated with traditional and HDHP plans could raise the need for real-time access to eligibility, co-pay, deductible status and pricing at the point of care.

Banks: HDHPs and HSAs are already experiencing growth among the insured and are estimated to reach more than 30 percent of the commercially insured population by 2012. Add to that the 20 to 40 million Americans who could be entering the healthcare system from the uninsured ranks and the number of HDHPs and HSAs could climb. Banks and/or investment managers could expect new deposits in HSAs to grow to more than $200 billion in the next five years, creating far greater consumer need for streamlined methods of information access, spending, saving and health financial planning.

Card Networks: Current 2012 estimates for healthcare spending are $4 trillion each year, according to the National Coalition on Healthcare. The volume of data and money clearing HSAs and related accounts will raise new requirements for security, fraud, data types/formats, timing and access to effectively serve consumers, providers, carriers and other stakeholders. Networks may work to assure systems (current or new) can accommodate industry changes and growth.

Investment Banks: Creators of HSAs have referred to them as 401(k)s or IRAs for health. With the potential for more than $200 billion in new consumer deposits by 2012, investment managers will be overseeing more money and customers. However, while investment managers handling retirement funds are typically managing funds held until a retirement date, HSA funds may need to be accessed regularly or early in the event of medical need. Therefore, investment banks will need transactional capabilities beyond traditional investment platforms and may seek partnerships or acquisitions to secure them.

Consumers: 87 percent of employers will offer consumer-directed healthcare accounts in the next years (including HSAs) with 50 percent of the HSA employers contributing money into these accounts. In order to navigate these new products, consumers will need tools to: 1) understand and compare quality and costs for healthcare services and 2) plan what they will need to save/spend/invest on healthcare, now and into retirement.

Along with its in-depth market forecasts, BearingPoint has also developed comprehensive financial and technology models to help financial services companies understand and prepare for the possible changes in the healthcare marketplace that could result from the implementation of universal health coverage.

Posted by Wiley Long at 01:25 PM | Comments (1)

March 16, 2008

Important Tax Filing information for those with Health Savings Accounts

The IRS has recently released an updated version of Publication 969 for use in preparing tax returns for the 2007 fiscal year. Publication 969 pertains to tax favored health accounts, including information regarding Health Savings Accounts, Health Reimbursement Arrangements, Flexible Spending Accounts, Archer Medical Savings Accounts, and Medicare Advantage Medical Savings Accounts.

The updated document reflects the new 2007 limits for Health Savings Accounts and incorporate changes made by the Tax Relief and Health Care Act of 2006 which took effect in 2007.

Among these changes were the elimination of the annual HDHP deductible cap on Health Savings Account contributions and the addition of the “last month rule” which treats individuals who become HSA eligible on Dec 1st as being HSA eligible for the entirety of the tax year. There is also updated information on qualified HSA distributions from Flexible Spending Accounts and Health Reimbursement Arrangements, distributions from IRAs, and instructions on how to properly report any 10% tax penalties on 1040 forms.

To read IRS Publication 969, click here.

Posted by Wiley Long at 02:05 PM | Comments (0)

February 01, 2008

Georgia to Make Health Savings Accounts More Attractive

Georgia lawmakers have unveiled proposed legislation that would make health insurance more affordable in the state of Georgia

The legislation would encourage small businesses to provide their employees with high-deductible health plans, coupled with Health Savings Accounts. It will also allow Georgians to deduct health insurance premiums from their state taxes if they have a high-deductible health insurance plans, said State Sen. Judson Hill (R-Marietta).

If you are a reader of this blog, you know a high-deductible health plan is an insurance plan that offers consumers lower premiums and higher deductibles. Health Savings Accounts allow people to pay for health care with tax-free dollars.

Estimates indicate about 500,000 Georgians could become insured if the reform legislation is passed by the 2008 Georgia General Assembly.

"This is a market based solution focused on empowering individuals and rewarding them for making healthy choices," said Hill, who authored the legislation. "This plan will make affordable health insurance more accessible for the uninsured and working families."

The legislation would include rebates for consumers who have high deductible plans with health savings accounts, when they engage in healthy behavior such as smoking cessation, weight loss or controlling diabetes.

The legislation would also incentivize companies to offer their employees HSAs. Employers with up to 50 employees could take a tax credit of $250 per employee that enrolls in a HSA eligible high-deductible plan. This legislation would also allow consumers to deduct premiums from state income taxes, if they are not already deducting premiums from federal income taxes. This would apply to consumers who purchase a high-deductible health insurance plan as an individual, or through an employer.

This legislation will be a great benefit for all Georgians. Hopefully more states and the federal government will follow Georgia's lead in making HSA insurance plan premiums tax deductible.

Posted by Wiley Long at 01:39 PM | Comments (0)

January 09, 2008

Getting Health Savings Accounts for Poor Individuals is Being Tested

The popularity of Health Savings Accounts for the poor individuals will be put to the test in Indiana under a program recently approved by the Bush administration. Under the plan, anyone making $20,000 or less a year could get health coverage for about $19 a week.

President Bush has long pushed Health Savings Accounts as a way to slow the rising cost of medical care and extend basic coverage to the uninsured.

Here are the details of the Health Savings Account program:

Under the Indiana program, eligible residents can pay up to 5 percent of their incomes into state-subsidized "Personal Wellness and Responsibility Accounts" that cover their initial medical expenses up to $1,100. Once that deductible is reached, private insurance purchased by the state kicks in.

Eligibility is limited to adults with incomes below twice the federal poverty level. The poverty level is now $10,210 for an individual and $20,650 for a family of four.

The waiver is the first of its kind for the Medicaid program, a state-federal partnership that provides health coverage to the poor and disabled.

Indiana officials said they've already received inquiries from more than 1,000 people interested in applying.

The program will be monitored closely because of the philosophical divide among lawmakers about the value of health savings accounts for the poor. Many say Health Savings Accounts work best for healthier and higher-income people with low medical expenses.

Judith Solomon, senior fellow at the Center on Budget and Policy Priorities, said she doubts that many people making $10,000 a year can afford to pay $500 for health insurance. She said that about 50,000 people lost Medicaid coverage in Oregon after that state got permission to raise insurance premiums to $20 a month.

"You can say it's better than nothing, but I just don't see how many of those folks will be able to afford it," Solomon said.

Indiana has allocated up to $114 million for the program in 2008 after its legislature voted to raise state taxes on cigarettes from 55.5 cents to 99.5 cents a pack.

The state is encouraging employers to contribute to their workers' accounts. Any money left at the end of the year can be rolled over to offset the following year's contributions if the beneficiary obtains certain screenings and services that help prevent illness.

"This is a big step forward that will lead to approximately 120,000 uninsured Hoosiers having the peace of mind of health insurance," said Indiana Gov. Mitch Daniels, a Republican who once served as Bush's director of the Office of Management and Budget.

Find out if a Health Savings Account is right for you at: http://www.health--savings--accounts.com

Posted by Wiley Long at 07:22 AM | Comments (0)

November 21, 2007

Health Savings Account Growth Continues

Growth in Health Savings Accounts (HSAs) continues unabated according to third-quarter figures gathered from account custodians. Initial returns from Information Strategies, Inc.'s quarterly survey of financial institutions indicate that the country is on track toward almost 8 million custodial accounts by the beginning of 2008.

With the process of education about the uses and benefits of Consumer Directed Healthcare (CDH) options finally taking hold, many individuals and companies are accepting CDH employer options, including Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs).

Industry stakeholders are worried that a Democratic sweep in the November 2008 elections will put these efforts in jeopardy, as leading candidates in that party support some form of national, universal healthcare plan.

One counter-balance to this scenario is the popularity of Health Savings Accounts in key swing states: Ohio, California, Texas and Florida. Combined, they are enough to swing the electoral-college vote.

At the same time, the growing support for HSAs by the so-called Blues healthcare insurance companies, combined with the expanding savings rate (expected to top $10 billion with estimates as high as $13 billion at the beginning of January) will make HSAs hard to kill in a new Congress.

Posted by Wiley Long at 08:03 AM | Comments (0)

August 08, 2007

New Health Savings Account Program Receives Federal Approval

A program allowing approximately 1,000 poor and disabled South Carolina residents to try out Health Savings Accounts has become the first in the nation of its kind to get federal approval.

The pilot program was designed to curb out of control spending within Medicaid, the state-federal health insurance program for the poor, disabled and elderly. Critics have said Medicaid recipients who use all the money in the Health Savings Accounts will not be able to afford additional medical care.

The program allows some Richland County Medicaid recipients $2,500 to cover deductibles for doctor's office visits and other medical care. It also provides children with $1,000 accounts, said Jeff Stensland, state Department of Health and Human Services spokesman.

If money is left in the Health Savings Account at the end of the year, up to 75 percent of it can be used for other health expenses, education or job training, or rolled over to the next year, Stensland said.

However, if the account is exhausted, Medicaid recipients have to pay 10 percent of their health care costs. However, there is a safeguard where if costs reach a higher threshold, recipients are again fully covered by the typical Medicaid program, Stensland said.

Stensland said the pilot program will be limited to 1,000 people during the next five years. The federal Centers for Medicare and Medicaid Services will review the program and could allow it to be expanded statewide, Stensland said.

A spokesman for the federal agency did not immediately respond to a telephone message.

Also, the Republican governor's office said the federal agency approved a statewide program that allows Medicaid recipients to enroll in an insurance program similar to the one used by state workers and retirees. The Medicaid recipients will get some expanded coverage, such as annual physicals and health screenings, Stensland said.

They will also get regular updates on how much their health care costs. "We have no idea what the participation will be," Stensland said.

Both programs are expected to be operating by the end of the year.

News of the programs came as the state's Health and Human Services Department was being criticized about a new transportation contract for Medicaid.

On Monday night, many people spoke out at a public hearing in Greenville against the new service, saying it was untimely and left the elderly and disabled without rides in some cases.

The agency said it changed the transportation system to improve accountability and efficiency after the previous system of contracting with county agencies brought high costs, fraud and abuse.

Lt. Gov. Andre Bauer said part of the problem was the head of governor's Cabinet agency, one of the South Carolina's largest, left in April. An interim replacement was named when former director Robbie Kerr left the agency, but Susan Bowling will leave the department in a couple of weeks, too.

"I respectfully renew my request that you act with dispatch to name a director of the Department of Health and Human Services," Bauer wrote Sanford on Tuesday. "That vacancy, now in its fourth month, has resulted in a public perception that no one is responsible or accountable for decisions by this $4 billion agency that is placing senior citizens and people with disabilities in danger."

"The lieutenant governor needs to get his facts right," Sanford spokesman Joel Sawyer said.

Kerr has been gone for two and a half months, not four, and the acting director is still there, Sawyer said.

The letter, delivered to reporters before Bauer's concerns had been brought to the agency, speaks more to Bauer's political motivations than his concern about transportation contracts, Sawyer said.

Learn more about Health Savings Accounts at: http://www.health--savings--accounts.com

Posted by Wiley Long at 01:58 PM | Comments (0)

June 27, 2007

Health Savings Account Comparability Regulations Proposed by IRS

The IRS has issued proposed regulations on how employers can comply with the comparable contribution requirements for Health Savings Accounts where an employee has not established a Health Savings Account by December 31st or an employee has not notified the employer that he or she has established a Health Savings Account.

The regulations also address the acceleration of employer contributions for the calendar year for employees who have incurred qualified medical expenses exceeding the employer's cumulative HSA contributions when the expenses were incurred. In general, these proposed regulations affect employers that contribute to employees' Health Savings Accounts.

Employers may rely on these regulations for guidance pending the issuance of final regulations. Alternatively, until the publication of final regulations, employers may continue to rely on the last sentence of Q&A-6(a) of Proposed Reg. §54.4980G-4, which provides that an employer is not required to make comparable contributions for a calendar year to an employee's HSA if the employee has not established an HSA by December 31st of the calendar year.

Employee has not established a Health Savings Account by December 31

The proposed regulations provide a means for employers to comply with the comparability requirements with respect to employees who have not established an HSA by December 31, as well as with respect to employees who may have established an HSA but not notified the employer of that fact. To comply with the comparability rules for a calendar year with respect to such employees, the employer must comply with a notice requirement and a contribution requirement.

Notice requirement

Pursuant to the proposed regulations, to comply with the notice requirement, an employer must provide written notice:

- to all such employees (as discussed above);
- by January 15 of the following calendar year;
- that each eligible employee who, by the last day of February, both establishes an HSA and notifies the employer that he or she has established the HSA, will receive a comparable contribution to the HSA.

The notice may be delivered electronically. In addition, the proposed regulations provide sample language that employers may use as a basis in preparing their own notices.

Contribution requirement

For each such eligible employee who establishes an HSA and so notifies the employer by the end of February, the employer must contribute to the HSA by April 15 comparable contributions (taking into account each month that the employee was a comparable participating employee) plus reasonable interest.

Acceleration of employer contributions

The proposed regulations also address the acceleration of employer contributions to employees' Health Savings Accounts. For any calendar year, an employer may accelerate part or all of its contributions for the entire year to the HSAs of employees who have incurred, during the calendar year, qualified medical expenses exceeding the employer's cumulative HSA contributions at that time. If an employer accelerates contributions for this reason, these contributions must be available on an equal and uniform basis to all eligible employees throughout the calendar year and employers must establish reasonable uniform methods and requirements for acceleration of contributions and the determination of medical expenses. An employer is not required to contribute reasonable interest on either accelerated or non-accelerated HSA contributions.

The proposed regulations also provide that an employer that accelerates contributions to the Health Savings Accounts of its employees will not fail to satisfy the comparability rules because an employee who terminates employment prior to the end of the calendar year has received more contributions on a monthly basis than employees who work the entire calendar year.

Comments and public hearing

Written or electronic comments on these proposed regulations must be received by August 30, 2007. Send submissions to: CC: PA: LPD: PR (REG-143797-06), Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044.

A public hearing has been scheduled for September 27, 2007, beginning at 10 a.m. in the Auditorium, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. (72 FR 30501, June 1, 2007.)

Posted by Wiley Long at 09:53 AM | Comments (0)

June 21, 2007

Another Health Savings Account Bill Introduced

U.S. Rep. Charles Boustany, R-Lafayette, introduced legislation to expand access to Health Savings Accounts.

The legislation would build intergenerational "wealth for health" savings by allowing adult children to inherit health investment plans. The Promoting Health for Future Generations Act of 2007 (H.R. 2639) also aims to remove current hurdles that limit veterans and seniors in Medicare from accessing Health Savings Accounts.

"Health Savings Accounts have greatly expanded coverage, but this bill makes them more practical for the working families, veterans, and Medicare seniors who benefit from them," said Boustany, a retired cardiovascular surgeon. "By allowing adult children to inherit a Health Savings Account in the same way that a spouse can, this measure will help working families build 'wealth for health' savings that can be passed on to other generations."

Under current law, families and individuals are unable to deposit their own money in a Health Savings Account after they receive care through Medicare or the VA. Boustany's legislation would eliminate this inequity, providing for increased growth and greater control over personal Health Savings Accounts.

"In removing these barriers, we are putting healthcare decisions back in the hands of the seniors and veterans who know best," Boustany added. "When you consider Medicare's looming financial problems, the affordable coverage and savings contained in this bill make it practical for patients and providers alike."

Posted by Wiley Long at 10:04 AM | Comments (2)

June 18, 2007

New Bill to Include Domestic Partners to Health Savings Account Tax Breaks

New legislation has been introduced in the U.S. Senate that would extend the same favorable Health Savings Account tax treatment to health insurance coverage offered to employees' domestic partners that employer coverage provided to employees' spouses and dependents now receive.

Under the measure introduced Wednesday by Sens. Maria Cantwell, D-Wash., and Gordon Smith, R-N.H., the cost of employer-paid coverage provided to a domestic partner or other nondependent, nonspouse beneficiary, would not be added to an employee's taxable income.

Additionally, employees could withdraw on a tax-free basis funds in their Health Savings Accounts to be reimbursed for medical expenses incurred by a domestic partner. Currently, such withdrawals would be taxable to the employee, with an additional 10% penalty tax imposed.

The measure also would exclude the value of coverage in determining employees’ wages for Social Security payroll tax purposes, as well as permit special trusts—known as voluntary employees’ beneficiary associations—to provide health insurance to employees’ domestic partners without the trusts losing their tax-exempt status.

A group of nearly three dozen major employers—including such well-known companies as Coors Brewing Co., General Mills Inc. and Hewlett-Packard Co. have banded together through the Business Coalition for Benefits Tax Equity to support the bill, said James Delaplane, who represents several members of the coalition and is a partner with Davis & Harman L.L.P. in Washington.

Increasingly, employers have decided to extend health care coverage to employees' domestic partners because they believe it will help them to attract and retain employees, Mr. Delaplane said. “Now, it is time for the tax code to catch up,” he said.

Posted by Wiley Long at 10:16 AM | Comments (0)

June 07, 2007

IRS to Accelerate Health Savings Account Contributions

The IRS has proposed regulations proposed that would allow employers that contribute to employees' Health Savings Accounts to accelerate contributions for employees whose medical care expenses are greater than what the employer has so far contributed to the Health Savings Account during the year.

Such an acceleration would enhance the appeal of Health Savings Accounts by reducing employees' concerns that their Health Savings Account could be exhausted if they incur big medical bills early in the year before employers make all of their contributions.

The proposed rule would apply to Health Savings Accounts that are not part of Section 125 programs, in which employees make pretax contributions to their Health Savings Account. Benefit experts say such an acceleration of employer contributions to Health Savings Accounts that are part of Section 125 programs already is permitted.

Posted by Wiley Long at 09:10 AM | Comments (0)

May 16, 2007

2008 Health Savings Account Contribution Limits Set to Increase

The United States Treasury Department has posted the 2008 Health Savings Account contribution limits on its website at:

http://www.treasury.gov

In 2008, the maximum contribution that can be made for individuals with single coverage will be $2,900, up from $2,850 this year, and the maximum contribution for family coverage will rise to $5,800, up from $5,650, according to the document posted.

Additionally, the maximum out-of-pocket expense — including deductibles — that individuals with single coverage can be required to pay will rise to $5,600 next year, up from $5,500 in 2007, and to $11,200 for family coverage.

The new Health Savings Account limits reflect increases in the cost of living are being posted earlier this year due to changes that went into effect late in 2007.

Learn more about Health Savings Accounts and all the health and tax advantages they can provide you at HSA for America.

Posted by Wiley Long at 09:57 AM | Comments (29)

April 20, 2007

Pre-Tax Health Savings Account Contributions

Federal employees enrolled in high-deductible health plans will be able to use pre-tax dollars to schedule automatic contributions to their Health Savings Accounts by the beginning of 2008.

Currently, employees with HSA plans make contributions on their own with after-tax earnings and then declare the contributions on their annual tax returns to get the tax benefit. The new service will allow employees to schedule the payments so they're automatically drafted from their paychecks before taxes are taken out.

Payroll providers will roll out the pre-tax service gradually through Jan. 1.

After their covered payroll provider switches to the new system, employees will be able to make pre-tax contributions using the same method they would use to establish other allotments, such as through the payroll Web sites Employee Express or MyPay. Employees will be able to modify their allotments at any time.

For 2007, employees can set aside $2,850 in a Health Savings Account for single coverage or $5,650 for family coverage, while those who are 55 or older can make an additional catch-up contribution of $800. The maximum contribution includes the premiums contributed to the Health Savings Account by each health plan.

Learn more about Health Savings Accounts at: http://www.health--savings--accounts.com

Posted by Wiley Long at 11:05 AM | Comments (0)

April 11, 2007

Despite Congressional Doubts, Health Savings Accounts Will Continue to Grow

Amid growing Congressional pressure to make some changes in Health Savings Account regulations, a new forecast on their expanding usage and popularity may give some political leaders pause.

Information Strategies, Inc. (ISI) has issued a new estimate on year-end and future growth based on interviews with Health Savings Account, Consumer Driven Healthcare and more traditional plan users as well as corporate and custodial managers.

"Many people are just now learning about the Health Savings Account changes effected in the closing days of the last congress and they are taking advantage of the new higher savings limits and the greater flexibility in rules," said JoAnn M. Laing, ISI's President & CEO.

ISI expects these changes, which some in Congress indicate they would like modified, to drive the popularity of Health Savings Accounts even higher.

Speaking at a Washington, DC meeting of industry leaders, Laing provided the following estimates of sector metrics at the end of 2007:

-- The number of Health Savings Accounts will reach 8 million.
-- Deposits in custodial accounts will total $13.6 billion at year-end.
-- Average accounts will pass $1,700 mark, with those accounts being in existence two or more years hovering at $4,400.
-- 22% of employers will offer HSAs.
-- More than 40% of all companies will fund 50% or more of the first year's deductible.
-- New HSA-covered lives will exceed eight million, bringing the HSA-insured total to 18 million.
-- Number of institutions offering HSA custodial accounts will pass 1,600.
-- Investment options for custodial accounts will become more numerous and diverse with major giants such as Fidelity taking a leading role.
-- Online portals and other integrated offerings will surge in the fourth quarter.

Laing said her company this year had surveyed more than 400 custodial institutions, 2,300 companies as well as 2,000 Americans about their HSA plans. In the past 30 months, the company has interviewed or survey almost 20,000 Americans.

"What we are seeing is a growing desire by respondents to take more control of their healthcare and retirement efforts," she added.

"Clearly HSAs, along with Health Reimbursement Accounts (HRAs) and Flexible Spending Accounts (FSAs) are gaining popularity both with individuals and employers of all sizes," Laing said.

"HSAs are popular with individuals and smaller company managers as a healthcare insurance alternative and even the larger firms such as Deere are jumping in with plans that require more effort on the part of employees but give them some part of their insurance premiums back in the form of savings," Laing said.

Posted by Wiley Long at 11:03 AM | Comments (0)

April 01, 2007

Using Your Health Savings Account to Buffer the Coming Medicare Insolvency

The Medicare Trust Fund will soon be out of money, and there will be no practical way for the government to continue to provide the level of benefits that current Medicare recipients receive. The result will be serious rations, waiting periods, and a reduction in benefits. If you wish to maintain your medical freedom, and have access to a high level of medical service, you must be prepared to pay for it yourself. The best strategy is to take good care of your health, and to build up your medical retirement fund as large as possible by using a Health Savings Account.

The Coming Medicare Insolvency

The total federal debt is now over $10 trillion. But if you also include the current unfunded liabilities of social security, Medicare, and other programs, the total federal debt is at least $54 trillion. This number has been confirmed in three separate studies - by the American Enterprise Institute, the National Center for Policy Analysis, and the Brookings Institution.

It is difficult to get a grasp of a number that big. That's $180,000 per person currently living in the United States. It is four times the U.S. Gross Domestic Product, the measure of the final value of all goods and services produced in this country in the course of a year.

As the program is currently structured it is unsustainable, and the fund is expected to be depleted by 2018. That is a mere 11 years from now. The shortfall in Social Security and Medicare revenues will continue to increase as the years go by - it will exceed $2 trillion by 2030. At that point, half of all tax dollars will have to go to Social Security and Medicare.

That clearly can't happen. Instead, the system will face massive cuts in benefits, probably in addition to large tax increases.

Who Will Pay Your Medical Expenses During Retirement?

So will Medicare be there for you? It depends on how old you are. Unless you are retiring in the next couple years, I certainly wouldn't count on it, particularly if you want to insure that you have access to high quality medical care during your retirement years.

Last year Fidelity Investments reported that the average couple retiring in 2006 would need $200,000 just to cover medical expenses during retirement. That estimate did not include the cost of over-the-counter medications, most dental services and, long-term care, if needed. And it did not include the charges that are currently paid by Medicare.

If we cannot depend on Medicare to be there for us, the only smart solution is to save as much money as possible. This will ensure that you can obtain the quality care you need. If you are not currently putting as much money as possible aside to pay for these expenses yourself, you are making a serious mistake.

What Is Your Solution?

As most readers already know, the very best tool for accumulating funds for future medical expenses is a Health Savings Account. An HSA is the only investment that provides a tax deduction when you deposit the money, yet never taxes the money if it is used to pay for qualified medical expenses.

Therefore, you should put as much money as possible into your HSA, and withdraw as little as possible. The contribution limit for 2007 is $2,850 for an individual, and $5,650 for families. Those over 55 can also contribute an $800 catch-up contribution. Making the maximum contribution each year will help you build a medical retirement fund that can be used to pay future medical expenses, tax-free.

Rather than withdrawing money from your account to pay for medical expenses as they occur, you should pay for medical expenses that are not covered by your health insurance, out of your own pocket. Save your receipts (for doctor visits, eye glasses, aspirin, etc), and leave your money in the account to grow tax-deferred. There is no time limit before you have to reimburse yourself, so you can make the most of this tax-free investment.

As soon as possible, you may also want to transfer some of the money into mutual funds. While some HSA administrators are paying interest rates as high as 5%, the only way you are going to really grow the account is to get a much higher return on your money. Many HSA administrators offer a discount brokerage option, so you can place your funds in virtually any stock or mutual fund.

For a family that contributes the maximum contribution each year, it is quite reasonable to assume an HSA account value well over $1 million after 25 or 30 years. Medicare may be broke, but at least you won't be.

"Medicare HSAs?"

The solution to the pending Medicare meltdown is very complicated, but it is clear that government-run medical programs don't work. The dismal results can be seen everywhere, from the former Soviet-bloc countries, to the broken down national healthcare systems of Canada and Europe. Medicare must be transformed into a program where seniors have an ownership interest in the money they are spending.

Replacing the government's obligation to provide benefits with a voucher that seniors could use to purchase health insurance from competing private insurers, and/or deposit into a "Medicare Health Savings Account," would bring market efficiencies and competition into the picture. This idea is endorsed by both the American Medical Association and the American Hospital Association.

Retirement HSAs may or may not ever come to fruition. But fortunately, HSA plans are available to those under age 65. If you do not yet have an HSA, get signed up for one now. You will lower your health insurance premiums, and can begin putting money aside for medical expenses you will almost inevitably incur during your older years.

Visit http://www.health--savings--accounts.com for more information.

Posted by Wiley Long at 03:45 PM | Comments (0)

March 27, 2007

Some State Laws are Getting in the Way of Health Savings Accounts

Some states have insurance laws that conflict with the requirements for Health Savings Accounts (HSAs) and hinder the insurers' ability to offer HSA-compatible health insurance plans. Some of these laws include mandating coverage of certain benefits below the deductible amounts specified in HSA rules and not exempting the money deposited in Health Savings Accounts from state taxes.

"We are seeing some very interesting HSA legislation this year. For example, recently, Ohio enacted a law that provides mandate-free high deductible health insurance plans for HSAs and now Rhode Island has introduced similar legislation," explained CAHI Director Dr. Merrill Matthews.

The Council for Affordable Health Insurance's updated HSA State Implementation Report reviews the state HSA environment and recent legislative action in one concise document. To learn more about current HSA state implementation issues, please go to http://www.cahi.org.

Founded in 1992, CAHI is a non-profit research and advocacy association whose mission is to develop and promote free market solutions to America's health care challenges. CAHI's membership includes health insurance companies (active in the individual, small group, HSA and senior markets), small businesses, physicians, actuaries and insurance brokers.

Get more information on Health Savings Accounts and HSA-qualifed health insurance plans at: http://www.Health--Savings--Accounts.com

Posted by Wiley Long at 09:05 AM | Comments (0)

March 11, 2007

Health Savings Accounts Help Tear Down Healthcare Walls

President Bush has introduced fairness into the tax code by giving a tax break to all Health Savings Account owners. This is a major step toward making health insurance affordable to those who want it, says Scott W. Atlas, senior fellow at Stanford University's Hoover Institution.

By making insurance prices transparent to individual buyers, health insurance can then be dissected, compared and assessed for value, an essential ingredient for unleashing the power of market forces and competition. Health Savings Accounts are leading the way in this transition.

But there is still more that can be done to extend knowledge -- the ultimate power -- to the patient, says Atlas:

- Government should demand that the prices of medical procedures be fully available and clearly presented to patients before any medical procedure.

- They should mandate that information about the qualifications of doctors be made available to their potential patients; currently doctors are not required to inform their patients whether they are board certified and deemed qualified in their field of practice.

Empowering patients with information and financial control for their health-care decisions will stimulate value-conscious choices. The alternative, widespread government mandates, often only end with negative and embarrassing consequences, says Atlas. One only needs to glance northward to Canada, with its lack of access to timely health care, to see what is so unacceptable about a centralized, government-controlled and wholly mandated health-care system.

Get your own Health Saving Account and become empowered!

http://www.health--savings--accounts.com

Posted by Wiley Long at 12:50 PM | Comments (0)

March 02, 2007

Health Savings Account Tax Considerations

Since Health Savings Accounts (HSAs) were created by the Medicare bill signed into law at the end of 2003, they are being considered by more and more Americans as a health insurance option. Anyone under age 65 who buys a qualified high-deductible health insurance policy can open an HSA.

Here is a quick overview on the important tax considerations of Health Savings Accounts:

How much can I contribute annually to an HSA?

For 2007, you can contribute up to $2,850 for individual coverage or $5,650 for families. If you’re 55 and older, you can make a catch-up contribution of $800. Legislation approved at the end of last year allows you to contribute up to these limits, even if your insurance deductible is less.

Do I fund an HSA with pre- or post-tax dollars?

If your employer offers a high-deductible health insurance policy, you may be able to make pretax contributions, like a flexible-spending account. If you open an individual HSA, your contributions will be deductible when you file your taxes, even if you don't itemize.

Are there income restrictions on the tax benefits, similar to an IRA?

Unlike a number of other tax breaks, there aren't any income limits associated with the tax-favored treatment of HSAs. Anyone under age 65 who buys a qualified high-deductible policy can benefit fully from the tax advantages of an HSA.

What's the difference between HSAs and flexible-spending accounts?

The tax benefits of both plans seem the same, but there are differences. The most important difference is that your HSA balances can roll over from year to year and continue to grow tax-free.
Legislation passed last December allows a one-time transfer of funds tax free from a flexible-spending account to an HSA. The newly revised law also allows individuals to make a one-time tax-free direct transfer of funds from an IRA to an HSA —up to the HSA’s annual contribution limit.

If my employer offers both an HSA and flex-spending account, can I have both?

Generally, no. You can’t have an HSA if you have a flexible-spending account to pay health-care costs or if you have other medical coverage, such as a spouse's policy. However, if your flex plan restricts reimbursements to wellness care, such as annual physicals, and vision and dental care, you can also have an HSA.

If I set up HSA through my current employer, can I take it with me when I switch jobs?

You can keep your HSA account money even after you leave that job, similar to a 401(k). Another benefit of HSAs is that if you are unemployed or laid off and are collecting State or Federal unemployment insurance, you can use funds from your Health Savings Account to pay for your health insurance premiums and for your routine health expenses – all tax-free.

What happens if I want to use the money in my HSA account for non-medical expenses?

You’ll incur a 10% penalty — plus an income-tax bill — if you use any of the money for non-medical expenses before you turn 65. After the age of 65, you can use the money in your HSA account for anything you please and you won't be hit with the 10% penalty, but you will have to pay income taxes on that money.

Can a couple that is planning to retire early open an HSA?

Yes. Anyone under age 65 can contribute to an HSA if he or she buys a qualified high-deductible health insurance policy, and he or she can contribute an extra $800 in 2007, if you're 55 or older. This catch-up contribution amount will increase by $100 per year until it reaches $1,000 in 2009.

Do my HSA contributions affect my IRA contributions?

No. Your HSA contributions won't affect your IRA limits — $4,000 per year or $4,500 for those over 50. It's just another tax-deferred retirement savings account.

Learn more about Health Savings Accounts at: http://www.health--savings--accounts.com

Posted by Wiley Long at 10:17 AM | Comments (0)

February 23, 2007

IRS Issues Guidance on Facilitating FSA and HRA Rollovers to Health Savings Accounts

The Internal Revenue Service has issued guidance regarding rollovers from Flexible Spending Arrangements (FSAs) and Health Reimbursement Arrangements (RHAs) to Health Savings Accounts (HSAs). The guidance is necessary because Health Savings Accounts are typically not available to individuals who are covered by standard FSAs and HRAs. The Tax Relief and Health Care Act of 2006 allowed rollovers from FSAs and HRAs into Health Savings Accounts. The purpose of the guidance is to allow the establishment of an HSA and the rollover of the qualified distributions for 2007 when the employee could potentially be covered by both types of plans.

The new rules provide for certain amounts in the FSA or the HRA to be rolled into a Health Savings Account. Generally, under the new rules, all of the following conditions must be satisfied in order to achieve the favorable tax treatment of the rollover:

A. By HSA plan year-end, the plan must have been amended, though the employee must have elected the rollover, and the year-end balance must have been frozen.

B. The funds must have been transferred by the employer within 2-1/2 months after the end of the plan year resulting in a “zero” balance in the FSA or the HRA.

Under the special transition relief provided in Notice 2007 - 22, available at (http://www.irs.gov/pub/irs-drop/n-07-22.pdf), the amounts remaining at the end of the year for 2006 can be rolled over without the freezing of the year-end balance in either the FSA or the HRA and the amendment, election and transfer may be completed on or before March 15, 2007.

Learn more about HSA government information.

Posted by Wiley Long at 09:38 AM | Comments (0)

January 25, 2007

President Bush's Health Savings Account Proposal

Health Savings Accounts may not be at the forefront of President Bush's proposal for health care reform this year, but he has not forgotten them.

During his State of the Union address Tuesday night, Bush outlined his plan to expand access to health insurance. The centerpiece is a standard tax deduction of $7,500 for individual policies and $15,000 for a family policy, regardless of how much the coverage cost or whether people buy it through work or on their own. Any amount over this threshold would be subject to tax.

This policy, experts say, could fuel interest in Health Savings Accounts, which Bush touted in his State of the Union address a year ago as a way to control rising health care costs and make health insurance available to more people.

HSAs are savings account, funded with pretax dollars, to pay for medical expenses. They are coupled with high-deductible health insurance policies that carry low annual premiums.

HSAs generally attract wealthier people and younger, healthier ones who don't want to shell out a lot for premiums and are willing to take the risk of paying more out-of-pocket if they get sick.

The tax deduction helps HSAs because it encourages people to keep their premiums low because they don't want to exceed the threshold and pay tax or because they want to get the maximum savings from the deduction.

"The incentive is there to purchase lower-cost coverage," said J.D. Piro, a principal at Hewitt Associates, a consulting group.

For instance, people may be more willing to buy a family policy for $8,000 annually, rather than $12,000, because they will still get a tax deduction worth $15,000, said Greg Scandlen, president of Consumers for Health Care Choices, which supports HSAs. The standard deduction removes the motivation to buy higher-cost plans.

Also, within a few years, the average annual premium will likely exceed the deduction, driving people to find lower-priced plans to avoid paying taxes on the excess cost.

Interest in HSAs, which were created in 2003, is growing. There were about 1.2 million HSA accounts in July, up 43 percent from January, according to Inside Consumer-Directed Care, a biweekly industry newsletter. The accounts held $1.5 billion in July, up 54 percent from six months earlier.

Last year, at the president's urging, Congress increased the amount that could be socked away in HSAs. In 2007, a person can contribute $2,850 if he or she has an individual policy and $5,650 for a family.

To be eligible for an HSA, a person's health insurance plan must have a deductible of at least $1,100 for an individual policy or $2,200 for a family plan.

Learn more about what a Health Savings Account can do for you at: http://www.health--savings--accounts.com

Posted by Wiley Long at 09:15 AM | Comments (2)

January 21, 2007

2006 Tax Relief Promotes Health Savings Accounts For 2007 Forward

As one of its last actions of 2006, Congress passed the Tax Relief and Health Care Act of 2006. No public policy area is more important or more in need of reform than the nation's health care system. This act makes some small but important changes that make health savings accounts easier to open and fund. Further improvements to health savings accounts will pay great dividends to all of the participants in America's health care system.

Health Savings Accounts offer lower premiums, and incentives for consumers to stay healthy and save money for future medical expenses. They also encourage more competition among healthcare providers. And as everyone knows, more competition inevitably leads to lower prices and higher quality. However, there are political opponents who say that HSAs will only be used by the healthy, wealthy, and young.

This criticism doesn’t appear to have much traction when we look at the statistics. People of all ages and wealth levels are choosing HSA plans, and there does not appear to be any separation in the group market based on health status. But to appease these critics and make HSA plans even better, we should do more to enhance personal accounts to help the sickest and those with ongoing medical conditions. Substantially higher contribution limits to cover both deductibles and out-of-pocket expenses would help those with medical conditions requiring permanent or prolonged care. HSA account balances would be more likely to grow and would offset the expected higher future expenses as these individuals age.

When people with ongoing health problems are participants in their own care, they become managers instead of just patients. HSAs will give them more incentives to pay attention to diet and to the costs of their tests and treatments, and to all their alternatives – something a hired physician just can’t do. Individuals alone should have the right to make their healthcare decisions. Instead, too many people are limited by their insurance company’s restrictions or government mandates. HSAs remove restrictions, giving people the power to control their own healthcare in a much more powerful way.

It is my hope that the new Congress will be able to work together to achieve solutions. Because HSAs offer the best solution yet to lower healthcare inflation and the cost of health insurance, both sides of congress should support efforts to expand access to these accounts, particular to those with chronic health problems.

Visit our website (http://www.health--savings--accounts.com) for more information on how a Health Savings Account can help you.

Posted by Wiley Long at 11:04 AM | Comments (0)

January 13, 2007

Health Savings Accounts and Your Taxes

Health Savings Accounts have a "triple" tax advantage from a federal tax standpoint. Individuals receive full tax advantages for their Health Savings Accounts on their Federal Income Tax return (or through a salary reduction program in certain employer-sponsored settings) regardless of particular state's tax treatment of Health Savings Accounts.

In fact, only 4 states do not allow tax deductions for Health Savings Accounts... Alabama, California, New Jersey, and Wisconsin.

An account beneficiary may take an above-the-line deduction (i.e. the amounts may be used to determine the individual’s adjusted gross income before any itemized or standard deductions are considered) for contributions made to an HSA during any month of the individual’s taxable year that the individual is eligible. The permitted deduction cannot exceed the sum of the “monthly limitations” for such months. Here are the 2007 limits:

- For those with single coverage, the maximum amount is $2,850.

- For those with family coverage, the maximum amount is $5,650.

Funds in an HSA grow on a tax-deferred basis, and distributions from an HSA are tax-free so long as the funds are used for qualified (as defined by Section 213d of the IRC) health care expenses.

How does state tax treatment of Health Savings Accounts differ from federal tax treatment?

HSAs (and the enabling legislation) are federal. As a federal program, each state decides whether to: a) comply with the federal guidelines, or; b) establish their own state guidelines regarding the tax treatment of HSAs. As a result, some income that may be tax-free at the federal level may not be tax-free at the state level.

Many states harmonize their tax treatment with the federal government. Those states include Arizona, Arkansas, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maryland, Missouri, Mississippi, New York, Montana, Nebraska, New Mexico, Oklahoma, North Carolina, North Dakota, Pennsylvania, South Carolina, Oregon, Rhode Island, Virginia, Utah and Vermont.

Other states, however, treat HSAs differently from the federal government, at least for tax purposes. The following states have indicated that legislation must be passed at the state level before HSAs receive a tax benefit at the state level: Alabama, California, New Jersey, and Wisconsin. New Hampshire and Tennessee do not tax income, but do tax dividends and interest.

See where all the states stand on the Health Savings Account issue: http://www.health--savings--accounts.com/state-income-tax.htm

Posted by Wiley Long at 11:24 AM | Comments (0)

December 26, 2006

Tax-free IRA Rollover Creates Health Savings Account Opportunity

The recently passed "Tax Relief and Health Care Act of 2006" has several provisions that make it easier to open and fund a Health Savings Account (HSA), including the option of a one-time tax-free rollover from an IRA into the HSA. This change has already caused a great increase in interest among the self-employed and other individuals who purchase their own health insurance.

We have been getting a tremendous number of inquiries from people who want to know how they can fund their account with money from their IRA.

HSA-qualified health insurance plans have high deductibles of $1,100 or more. By doing a tax-free rollover from their IRA, individuals can immediately fund their Health Savings Account so that the deductible can be covered 100%. That basically removes the risk of going with a high-deductible plan.

Health savings accounts are special tax-favored savings accounts that anyone with a qualified high-deductible health insurance plan can open and fund. Any money put in the account is tax deductible, and can be used tax-free to pay for future medical expenses. If the money is not withdrawn, it continues to grow tax-deferred like an IRA. HSAs first became available in January 2004, and today nearly five million people are covered by an HSA-qualified health insurance plan.

HSA plans have much lower premiums than traditional co-pay plans, but they do have a higher deductible. Medical expenses that someone incurs before they meet their deductible can be paid for from the HSA, but if they've just opened their HSA they may not have had enough time to accumulate much money in it. The tax-free IRA rollover solves that problem. I expect that by sometime in 2007 sales of HSA plans will eclipse co-pay plans as the preferred type of health insurance among individuals purchasing their own plans.

Both IRAs and HSAs are special tax-favored accounts that can be funded with tax-free money, and that grow tax-deferred. But HSAs have an additional tax advantage over IRAs: if the money is withdrawn to pay for qualified medical expenses, taxes never need to be paid on those funds. This makes HSAs a much preferred way to save for future medical expenses.

According to Fidelity Investments, the average couple retiring in 2006 will need $200,000 to cover medical expenses, not even counting dental, over-the-counter medications, or long-term care. And that amount is going up every year. Those who have an HSA could have thousands of additional dollars available to them to cover these expenses in their retirement years.

To help people who are buying their own health insurance understand these changes, HSA for America is hosting weekly teleseminars throughout the rest of 2006. If someone can get their coverage in place before December 31, they can lock in 2006 rates for the next 6 - 24 months.

Please visit http://www.health--savings--accounts.com for complete information.

Posted by Wiley Long at 10:47 AM | Comments (1)

December 10, 2006

Congress Expands Health Savings Accounts in Final Days

Congress has just given final approval to the "Tax Relief and Health Care Act of 2006" which includes provisions to expand Health Savings Accounts (HSAs).

"HSAs are still relatively new, but we are already seeing them quickly grow in popularity in the early stages of their existence," said Ways and Means Chairman Bill Thomas (R-CA). "The adjustments in this bill will make HSAs more attractive as Americans consider their health insurance options."

The newly enacted provisions would make several improvements to the already-successful HSA program. Here is a summary of the new provisions:

Expands Funding Sources for HSAs

* Allows an employee a one-time opportunity to roll over unused funds from an existing Flexible Spending Account (FSA) and/or Health Reimbursement Arrangement (HRA) to deposit in their Health Savings Account. Under this bill, employees would have the ability to start an HSA by making a one-time tax-free transfer of FSA and HRA amounts in their accounts as of September 21, 2006 to an HSA which would belong to the employee. The transfer must be made before January 1, 2012.

* Allows one-time transfers from Individual Retirement Accounts (IRAs) to Health Savings Accounts. The bill allows taxpayers to make a one-time distribution from an IRA to an HSA so HSA funds are immediately available to meet family health needs. The "roll-over" cannot exceed the HSA contribution limit for the year and is subject to the recapture taxes applicable to the part year coverage provision described below.

Expands the Annual Limits on HSA Contributions

* Repeals the annual deductible limitation on HSA contributions. The bill allows individuals with HSA-qualified health insurance plans that have deductibles below the annual contribution limits (currently $2,700 for self-only coverage and $5,450 for family coverage) to contribute up to these maximum amounts each year. Currently, contributions are limited to the policy deductible if below the annual contribution limits.

* Allows full-year contributions for part-year coverage. The bill would permit taxpayers whose HSA-qualified coverage begins mid-year to make a contribution equal to their policy deductible for the year (or the annual contribution limit, if higher (see above). This will help people who begin their HSA-qualified coverage part way through the year and who are subject to the entire calendar-year deductible by allowing them to make a full annual contribution, rather than pro-rating their contribution for the number of months of HSA-qualified coverage. Taxpayers would be required to maintain a high deductible plan for a full year beginning in the month the HSA begins or pay tax on the contribution and a 10 percent penalty.

Additional Flexibility for Employers to Help Lower Paid Workers

* Allows employers to make additional contributions for lower-paid workers. The bill provides an exception to the current "comparability rules" that require companies to make equal dollar contributions to all HSA-eligible employees with similar coverage (single or family) and work status (full-time or part-time). This provision will give employers flexibility to provide greater assistance to their lower-paid workers in the form of contributions to their HSA accounts.
Earlier Notification of Cost of Living Adjustment

* Under current law, the minimum deductible and out-of-pocket limits for HSA-qualified policies, as well as the annual contribution limits are indexed for inflation. The bill requires the Secretary of the Treasury to announce adjustments to the amounts by June 1st of each year. Currently, the adjustments are not announced until November each year. Earlier notification will simplify planning decisions for insurance companies, banks, credit unions, employers, and taxpayers.

Read all the details of The Tax Relief and Health Care Act of 2006.

Find out more about Health Savings Accounts and how to get an HSA-qual