Health(y) Savings

By choice or by necessity you may be enrolled in a high deductible health insurance plan.  If you are I hope by now you have heard of health savings accounts (HSAs).  According to http://www.treasury.gov/resource-center/faqs/Taxes/Pages/Health-Savings-Accounts.aspx, the health savings account legislation was signed into law by President George W. Bush on December 8, 2003.  Although it has been around for more than 8 years, it has recently gained some traction the last couple years. 

The HSA is a tax-sheltered savings account similar to an IRA, but funded for future medical purposes as opposed to just retirement.

In order to be eligible for the new HSA, an individual must meet the following criteria:

  1. Must have a high-deductible health plan policy  
  2. Cannot be the dependent of another taxpayer
  3. Cannot be enrolled in or eligible for Medicare or other health insurance
  4. Must be under the age of 65

According to the US Treasury department website noted above, a high-deductible health plan is defined as a health plan with an annual deductible that is not LESS THAN $1,200.00 for single coverage or $2,400 for family coverage.

 Benefits

  1. Portability
    The new HSA has the flexibility to be under your control. Even if you change jobs, your HSA funds go with you.
  2. Reduction of Insurance Premiums
    By selecting a high-deductible health insurance plan, you can reduce your annual premiums and then use the savings to fund your own HSA.
  3. Tax Deduction
    Federally qualified HSA contributions can be deducted from gross income on your federal tax return, providing you with a nice tax break. Some states even allow the deduction on the state income tax return.
  4. Long-Term Savings 
    You control the contributions and the investments in the plan. It’s a great way to save long term for unexpected medical costs, or you can use the funds for retirement after age 65.
  5. Tax-Free Growth
    Contributions, investment growth and withdrawals for health-related expenses are all tax free.

Contribution Limits

The amount of your annual HSA contribution cannot exceed the deductible on your high-deductible heath plan or the HSA plan limits, whichever is lower. In 2011, the limits are $3,050 if you have single coverage and $6,150 for a family. These amounts have increased for inflation and will continue to do so in future years.  However, if you have a health plan with a deductible of $1,500, you may not deposit more than $1,500 in your HSA plan for that year. 

The chart below details the HSA contribution limits:

Year

Single

Family

Catch-Up Contribution

2011

$3,050

$6,150

$1,000

2012

$3,100

$6,250

$1,000

Both you and your employer can make contributions to the HSA as long as they don’t exceed the maximum allowable amount. An additional “catch-up” provision is also available for individuals who are age 55 or older.

Expenses Covered

When needed, the HSA provides for a broad range of tax-free withdrawals for services, including the following:

  • Nursing home costs
  • Physical therapy
  • Doctor, dentist and hospital visits
  • X-rays
  • Drugs
  • Eyeglasses and contact lenses
  • Chiropractic care
  • Artificial limbs
  • Laboratory expenses

Risks

An HSA holder who uses the money for non-health expenditures must pay tax on the withdrawal, plus a 10% penalty.  After age 65, a withdrawal used for a non-health purpose will be fully taxable, but not penalized. 

In Wisconsin, 2011 was the first year residents who use health savings accounts are able to take advantage of tax breaks for HSAs at a state level, making them even more appealing for us.  Here is a recent article written in the Wisconsin State Journal on Sunday, February 5, 2012: http://host.madison.com/wsj/business/wisconsin-offers-new-health-care-day-care-deductions/article_30aa09c0-4f5b-11e1-be89-001871e3ce6c.html

 Have you considered a Health Savings Account and are the rising costs in health care affecting you??  We look forward to hearing from you.

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