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Click here to return to this month's Article Index The Cutting Edge™ - July 2004Health Insurance Option: Health Savings Accounts - How HSA's WorkBy Tim Larkin, Employee Benefits Specialist, CommonWealth Professional Group (CGP), tlarkin@cpgins.com HSA's or Health Savings Accounts were instituted by congress with the passage of the most recent Medicare Bill. HSA's replace MSA's (Medical Savings Accounts) that had been in place since 1997. MSA's were available to individuals and Sole Proprietors (with no employees) only. HSA's combine a HIGH DEDUCTIBLE HEALTH PLAN with a savings account (in the form of an annuity) in order to greatly reduce and control health insurance costs. High Deductible Health Plans are defined as plans with a minimum of $1,000 Deductible for an Individual and $2,000 for a Family (most insures have a minimum of $2,000 Individual/$4,000 Family for group plans). Under such a health plan, ALL services fall under the deductible. This includes Office Visits, Diagnostic Testing, Prescription Drugs as well as Hospital and Surgical Benefits. This type of health plan creates an OUT-OF-POCKET expense for employees that they may not have experienced in previous health plans. In order to offset this "Out-of-Pocket" expense, a savings account is established for each employee from which money can be withdrawn to pay for those services that fall within the plan deductible. Contributions to this "Health Savings Account" can be made by the employer (usually with some of the money saved by switching to this type of plan), the employee - which can be done on a pre-tax basis, or by both. Annual contributions to this account are limited to the total amount of the plan deductible. Monies contributed earn interest (approximately 3% to 4%) and withdrawals for "qualified expenses" can be made tax free. Qualified expenses included Medical, Dental, Vision, Chiropractic Care, Prescription Drugs, etc. Monies withdrawn for non-qualified expenses are considered taxable income and can include an additional 10% penalty. Amounts accumulated but not used are "rolled" into the next year and continue to earn interest. At age 65, withdrawals can be made from your HSA for any reason taxed as regular income. Regulatory issues and insurance company options vary from state to state. To learn more
about HSA's and whether they are right for your business please contact Tim Larkin of
CommonWealth Professional Group at tlarkin@cpgins.com or call 888-852-5203.
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