Health Savings Accounts

Health Savings Accounts and High Deductible Health Plans*

Among the provisions of the Medicare Prescription Drug and Modernization Act was the creation of Health Savings Accounts (HSAs) effective January 1, 2004. The purpose of health savings accounts is to help individuals save for qualified medical and retiree health expenses on a tax-free basis.

Among the advantages to members are:

Contributions to the account are federally tax deductible
Contributions may be made by an individual, an employer or both
Amounts in an HSA belong to the individual and are fully portable
Amounts in an HSA earn tax free interest
Unused amounts in the account at year end remain available for future years
Distributions are not taxed if used for qualifying medical expenses

There are two separate components involved to take advantage of the new opportunities presented by Health Savings Accounts. The first is purchasing a qualifying high deductible health plan (HDHP), not just a health plan with a high deductible. The second part consists of opening a Health Savings Account. To open a Health Savings Account you must satisfy the following conditions: 1) be enrolled in a qualified high deductible health plan, 2) not be enrolled in any plan that isn’t a high deductible health plan, 3) not be enrolled in Medicare and 4) not be claimed as a dependent on someone else’s tax return.

High Deductible Health Plans

HDHPs are available to individuals under age 65 and employer groups of all sizes. A health plan qualifies as a high deductible health plan if it at least satisfies the following criteria:

Individual Only Coverage
- A deductible of at least $1,150 per calendar year
- Out of Pocket expenses due to deductibles, co-pays, etc. may not exceed $5,800 per calendar year
Family Coverage
- A deductible of at least $2,300 per calendar year
- Out of Pocket expenses due to deductibles, co-pays, etc. may not exceed $11,600 per calendar year for the family
- The HDHP may not start paying for any individual until the $2,300 family deductible is satisfied

Please be aware that not all plans with high deductibles satisfy the qualifying criteria.

Who should consider a High Deductible Health Plan (HDHP)?

Employers interested in immediate reductions in health insurance costs
Employees who are generally healthy and do not utilize a significant amount of health care services annually
Employers that want to offer health insurance to employees but can’t afford it.
Employees who want access to tax free funds to pay for their health care expenses
Employees who want freedom of choice to see any physician they choose
Employers and employees interested in expanding the amount they can deduct from their federal income taxes

Who should not consider a HDHP?

Employees who are heavy utilizers of health care services
Employers not willing to educate employees on the benefits of HSAs and HDHPs

Health Savings Accounts

Once you are enrolled in a qualifying HDHP, and satisfy the other conditions outlined above, members may open their Health Savings Accounts. The HSA is a tax exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of a beneficiary who becomes covered under a high deductible health plan (HDHP). With Individual Only HDHP coverage, the maximum amount you may contribute to your HSA in 2009 is $3,000. With Family coverage, you may contribute $5,950. If you are between the ages of 55-64 you may contribute an additional $1,000 in 2009. You would be able to withdraw those funds tax free if you needed to pay for medical expenses incurred during the year. Any funds remaining in your account at year end roll over for use in future years.

Deposits into the account are deductible from your federal income taxes. Distributions are not subject to taxes if withdrawn to pay for legitimate medical expenses. Among qualifying medically related expenses that may be paid from HSA accounts are:

Deductibles applied to provider charges
Coinsurance applied to provider charges
Physician & Hospital co-payments
Prescription Drugs
Dental and vision services
When over 65, Medicare premiums
Long Term Care premiums
COBRA premiums

If you use the funds for other than healthcare related expenses, you must pay income tax plus a 10% penalty. Upon attaining age 65, you may use the funds for non-medically related expenses. You will only have to pay income tax on the withdrawals at that point.

If you decide that you want a Health Savings Account for you, your family and employees, the first step is to obtain a high deductible health plan. After you’ve been approved for your HDHP, you will be able to establish your Health Savings Account with your financial institution and be on your way to take control of your future health care expenses.

* Please Note: Marsh and your Association/Society do not render tax or legal advice. You should consult your advisors regarding applicable tax or legal considerations.


	Health Savings Accounts and High Deductible Health Plans* Among the provisions of the Medicare Prescription Drug and Modernization Act was the creation of Health Savings Accounts (HSAs) effective January 1, 2004. The purpose of health savings accounts is to help individuals save for qualified medical and retiree health expenses on a tax-free basis. Among the advantages to members are: Contributions to the account are federally tax deductible Contributions may be made by an individual, an employer or both Amounts in an HSA belong to the individual and are fully portable Amounts in an HSA earn tax free interest Unused amounts in the account at year end remain available for future years Distributions are not taxed if used for qualifying medical expenses There are two separate components involved to take advantage of the new opportunities presented by Health Savings Accounts. The first is purchasing a qualifying high deductible health plan (HDHP), not just a health plan with a high deductible. The second part consists of opening a Health Savings Account. To open a Health Savings Account you must satisfy the following conditions: 1) be enrolled in a qualified high deductible health plan, 2) not be enrolled in any plan that isn’t a high deductible health plan, 3) not be enrolled in Medicare and 4) not be claimed as a dependent on someone else’s tax return. High Deductible Health Plans HDHPs are available to individuals under age 65 and employer groups of all sizes. A health plan qualifies as a high deductible health plan if it at least satisfies the following criteria: Individual Only Coverage A deductible of at least $1,150 per calendar year Out of Pocket expenses due to deductibles, co-pays, etc. may not exceed $5,800 per calendar year Family Coverage A deductible of at least $2,300 per calendar year Out of Pocket expenses due to deductibles, co-pays, etc. may not exceed $11,600 per calendar year for the family The HDHP may not start paying for any individual until the $2,300 family deductible is satisfied Please be aware that not all plans with high deductibles satisfy the qualifying criteria. Who should consider a High Deductible Health Plan (HDHP)? Employers interested in immediate reductions in health insurance costs Employees who are generally healthy and do not utilize a significant amount of health care services annually Employers that want to offer health insurance to employees but can’t afford it. Employees who want access to tax free funds to pay for their health care expenses Employees who want freedom of choice to see any physician they choose Employers and employees interested in expanding the amount they can deduct from their federal income taxes Who should not consider a HDHP? Employees who are heavy utilizers of health care services Employers not willing to educate employees on the benefits of HSAs and HDHPs Health Savings Accounts Once you are enrolled in a qualifying HDHP, and satisfy the other conditions outlined above, members may open their Health Savings Accounts. The HSA is a tax exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of a beneficiary who becomes covered under a high deductible health plan (HDHP). With Individual Only HDHP coverage, the maximum amount you may contribute to your HSA in 2009 is $3,000. With Family coverage, you may contribute $5,950. If you are between the ages of 55-64 you may contribute an additional $1,000 in 2009. You would be able to withdraw those funds tax free if you needed to pay for medical expenses incurred during the year. Any funds remaining in your account at year end roll over for use in future years. Deposits into the account are deductible from your federal income taxes. Distributions are not subject to taxes if withdrawn to pay for legitimate medical expenses. Among qualifying medically related expenses that may be paid from HSA accounts are: Deductibles applied to provider charges Coinsurance applied to provider charges Physician & Hospital co-payments Prescription Drugs Dental and vision services When over 65, Medicare premiums Long Term Care premiums COBRA premiums If you use the funds for other than healthcare related expenses, you must pay income tax plus a 10% penalty. Upon attaining age 65, you may use the funds for non-medically related expenses. You will only have to pay income tax on the withdrawals at that point. If you decide that you want a Health Savings Account for you, your family and employees, the first step is to obtain a high deductible health plan. After you’ve been approved for your HDHP, you will be able to establish your Health Savings Account with your financial institution and be on your way to take control of your future health care expenses. * Please Note: Marsh and your Association/Society do not render tax or legal advice. You should consult your advisors regarding applicable tax or legal considerations.
		Back Page last updated 1/5/09 © 2009 Seabury & Smith Insurance Program Management CA License #0633005