Health Savings Accounts & High Deductible Health Plans

HSA/HDHP:

A Health Savings Account (HSA) and High Deductible Health Plan (HDHP) provides traditional medical coverage with a tax free way to help you build savings for future medical expenses that may occur. These plans provide you with greater flexibility and discretion over how you use your health care benefits. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage or after a small deductible or copayment.

The IRS has announced its 2012 key amounts for Health Savings Accounts (HSAs) and High Deductible Health Plans (HDHPs). All 2012 contribution amounts have increased from 2011, reflecting a cost of living adjustment. The increases can be found in the chart below:

A Health Savings Account (HSA) and High Deductible Health Plan (HDHP) provides traditional medical coverage with a tax free way to help you build savings for future medical expenses that may occur. These plans provide you with greater flexibility and discretion over how you use your health care benefits. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage or after a small deductible or copayment.

HSAs: What an Employer Needs to Know

  • HSAs are tax-favored IRA-type trust accounts which allow employees to pay for certain medical expenses tax free
  • Decrease cost of insurance / make insurance more affordable
  • Offer employer and employee tax-savings
  • Make employees aware of costs of providers and services
  • Encourages employees to shop and inquire about cost of services
  • Makes employees responsible for their healthcare spending
  • Accounts are owned and controlled by the employee
  • Accounts are completely portable
  • Employees terminate, the account goes with them
  • No “use it or lose it” rule as with FSAs

What is a qualified HDHP

FOR 2012 SINGLE FAMILY
Minimum Deductible $1,200 $2,400
Max. Out of Pocket $6,050 $12,100
Max. Out of Pocket Must include deductibles, copays & coinsurance

An HDHP may not have:

  • Coverage prior to satisfaction of the deductible
    • No copay-type coverages such as doctor visits or Rx
    • Exception: Certain preventive care and “permitted other coverage”

What is “permitted other coverage?”

Coverage for accidents, disability, dental, vision, or long-term care

Summary

  • To be eligible, an employee must first be covered by a qualified HDHP that fits the specific plan design the law requires, … then,
  • a savings account is opened at an IRS-approved custodian/trustee institution

How much may be contributed?

For 2012

  • Individual:
    • Up to the maximum of $3,100 no matter what the deductible is on the HDHP
  • Family:
    • Up to the maximum of $6,250 no matter what the deductible is on the HDHP

Tax Savings

What are the tax benefits of an HSA?

Three Categories

  • Employer contributions
  • Employee/Individual contributions
  • Distribution/Spending the Savings

What are the tax savings for an employerýs contributions?

  • Employer Contributions are deductible to the employer
  • Not subject to withholding from wages for income tax or subject to FICA, FUTA or RR Retirement Act.
  • Contributions to an employeeýs HSA through a cafeteria plan are treated as employer contributions and deductible to the employer (therefore no withholding) and tax free to the employee
  • Any employer or employee salary reduction contributions are exempt from employment taxes ý therefore tax savings to employers

What are the tax savings for an individualýs contributions?

  • Contributions are deductible “above-the-line” (not includable in gross income)
  • Deductible whether on not a person itemizes
  • Employee contributions through salary reductions are not subject to withholding on the amount withheld

Taxation of Distributions

  • Money spent from the savings account for qualified (section 213[d]) expenses is tax-free (not includable in gross income)
  • Money spent on anything not considered a qualified expense is added to gross income and is subject to 10% excise tax.
  • At age 65+, HSA funds may be used for any expense
  • Subject to ordinary taxation
  • Section 213(d) expenses tax-free

For more information on HSA or HDHP, or to get a quote for your group, please give us a call at (770) 643-5444.

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