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How Changes in Health Savings Accounts Impact You
Clelland Green
2007-08-07 |
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There have been some fairly significant changes in health insurance recently, specifically in the area of health savings accounts (HSA's). At a high level, more benefits are being passed on to you. Last December, Congress passed some new changes that effected many people as of January 1st of 2007. This demonstrates significant progress considering that HSA's were started as recently as 2003. |
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Health savings accounts can be thought of as attachments to health insurance plans that have a high deductible or HDHP (High Deductible Health Plan). They allow for the payment of current health expenses while saving for future qualified medical and retiree health expenses. In order for a particular health plan to qualify as an HDHP in 2007, it must have a deductible amount between $1,100 to $5,500 for singles and between $2,200 to $11,000 for families. |
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You must be covered by a High Deductible Health Plan to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, allowing the difference to be put into the Health Savings Account. |
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Other features of health savings accounts that enable them to attract those looking to be able to combine savings with health insurance are:
- Amounts used for medical purposes are tax-free
- Deposits are tax deductible
- Money stays in account and builds from year to year while accumulating interest
- Money remains under your control and you decide what types of investments to make with the money in the account in order to make it grow.
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Changes have recently occurred to make all of these great features even better. Here are a few examples of the changes and how they can benefit you. |
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1.Maximum Deposit |
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In the past, there was a limit on the amount that you could deposit into the account, which was the amount of your deductible on your health insurance policy. You are no longer limited by the deductible and can deposit a higher amount into your savings to be able to earn a greater interest. In 2007, you can deposit an additional $800. In 2008, this extra amount will be raised to $900. For example, if your deductible is $2,000 as a single person, you can deposit up to the maximum deductible of $2,800. If you are 55 or older, you can deposit an even greater amount. |
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2.Take Advantage Of Full Year Deposits Even With Partial Year Enrollment |
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Even if you now enroll in September, you can still take advantage of a full year's deposit. You are not limited now by how much you can deposit because it is not placed on a monthly basis. Previously, you were allowed to deposit 1/12 of the total amount for each month that you were enrolled. This stipulation has been removed but you still must meet the qualification of a testing period, which means that you must still be enrolled at the end of the 12th month from the time you enroll. |
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3.Transfer of Funds |
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If you already have a Health Flexible Savings Account (FSA), Medical Savings Account (MSA) or a Health Reimbursement Account (HRA), then you are permitted to make a transfer from one of those accounts to your HSA. Please note that you can only do this once in your lifetime from each type of account. Also, you cannot make a transfer out of an HSA to any other savings plan. The limit for this transfer is $2,000. The eligibility for this type of transfer requires that you are no longer eligible for medical care under that plan. All transfers must be made by January 1, 2012. |
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In addition to being able to make the transfers described above, you can also make non tax-deductible transfers from an IRA. The only limit is the deductible amount that is on your health insurance policy. There is also a one transfer per policy lifetime with one exception; If you make your first transfer as a single person, you can make another transfer if you become married that same year. The total amount you can contribute cannot be greater than the deductible amount on your policy. Please note that in this case, transfers can also be made from one HSA to another. |
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4. Employees With FSA’s Can Make Contributions To An HSA In Spite Of Grace Period |
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Under the old way of doing things, if you currently were a member of an FSA plan, then you could not either start an HSA or contribute to one until the first day of the first month after the grace period of the FSA expires. Now, you can make deposits into the account in spite of having an FSA, but you must deposit all of the balance into the HSA. Another stipulation is that you need to have less money in your FSA account than what you had as of September 21, 2006 in order to qualify. If this is not the case, then you still must wait until the end of the grace period. |
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In conclusion, each of these new changes in the management of HSA’s allows for greater flexibility for you. These policies have become more consumer friendly than ever before and you can expect this trend to continue in the future. If you do not currently have a health savings account, it is time for you get your own to combine your needs of lower cost healthcare and a savings for retirement. If you’re not sure where to start, find a trusted health insurance advisor, like one from Benepath, to help you determine the best options for your needs and budget. |
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