Benefits Blast

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ISSUE 2

This month's issue is about HEALTH SAVINGS ACCOUNTS

Employers have known for several years now the advantages associated with offering Flexible Spending Account arrangements to their employees, and since the Medicare Modernization Act passed in 2003 a fast growing number of Employers are beginning to discover the even greater advantages associated with Health Savings Accounts. In order to understand the advantages of Health Savings Accounts (HSAs), it is first important to break them down into the 2 major pieces of the puzzle.

1) The Medical Insurance Plan
In order to be eligible to open a Health Savings Account an individual must be enrolled in an HSA Compatible High Deductible Health Plan, cannot be covered by other health insurance, cannot be enrolled in Medicare, and cannot be claimed as a dependent on someone else's tax return

2) High Deductibles
2. A High Deductible Health Plan must have a minimum deductible of $1,100 (for single covererage) and $2,200 (family maximum.) The plan's out-of-pocket maximum (including deductible) cannot exceed $5,600 (individual) and $11,200 (family maximum). The HDHP requires the employee to be responsible for 100% of first dollar deductible expenses - including prescriptions. First dollar coverage (no deductible) is permitted for preventive care.

The Health Savings Account
When an employee enrolls in an HSA compatible HDHP plan, they are eligible (but not required!) to open a Health Savings Account. In 2008 individuals are eligible to contribute up to $2900 (or $5800 for families) on a PRE-TAX basis towards their HSA's. Employees age 55 and older can contribute additional "catch up" amounts. Employees may then use the dollars in the HSA to pay for out-of pocket eligible medical expenses. Even more, they may use HSA dollars for any item that is considered a 'Qualified Medical Expense' according to the IRS's Publication 502 not only for themselves but also for their "IRS eligible dependents". The IRS's broad definition of 'Qualified Medical Expense' makes HSA dollars hold an even greater value for Employees. Dollars in the HSA account are available not only for prescriptions and doctor visits, but also for dental expenses, contact lenses or eye surgery, acupuncture, chiropracter, and even infertility treatments that are typically not covered by most medical plans.

The icing on the cake? Any unused dollars roll over and continue to accrue - TAX FREE. The account holder also has the option to choose investments for the HSA dollars. At age 65 employees may continue to use their HSA dollars tax free to pay for their qualified medical expenses OR (much like their IRA and 401k) they may withdraw their HSA dollars at their then-taxable rate. (withdrawals prior to age 65 for other than eligible medical expenses are also subject to a 10% tax penalty).

The Advantages to Employers include but are not limited to:

• An immediate reduction in health insurance premiums for both Employers and Employee's contributions by moving to the high deductible plan.
  
• A greater volume of Employees setting aside pre-tax dollars for their HSAs reduces the Employer's FICA, FUTA match, and workers compensation payroll base.
  
• HSAs are owned by the account holder and are therefore the Employee's responsibility, unlike FSAs where the Employer is required to manage (and often pre-fund) dollars for the Employees.
  

Employers who provide their employees the convenience of payroll deducted H SA contributions provide an enhanced employee benefit at little or no cost. Employees enjoy convenience and consistency when contributions are payroll deducted. In addition, when employers deduct contributions via section 125, employees realize immediate Federal and FICA savings. Most qualified HDHPs provide a companion H SA that allow employers to work with their medical plan carrier to initially set up H SA bank accounts and transfer employees' payroll deductions easily.

The only disadvantage is... NOT taking advantage of this great deal!

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