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HSA Information

The concept of Health Savings Accounts combines an affordable qualified High Deductible Health Plan (HDHP) and a tax-favored Health Savings Account (HSA). The combination results in savings through lower health care premiums and a reduction in taxable income. The HSA grows tax-deferred, and if you use your HSA funds for eligible medical expenses, you never have to pay taxes on those funds!

With HSAs, you control your health care decisions!

 

 

What are Health Savings Accounts (HSAs)?

Health Savings Accounts are tax-exempt accounts with a financial institution in which you accumulate savings to pay for medical expenses. Contributions and income earned on funds in the accounts are 100% TAX FREE. The account allows you to enjoy tax reductions while having affordable premiums and decreasing your out-of-pocket expenses without risking your insurance protection.

Contribution Source Individual (or on behalf of the individual) and/or employer 
Contribution Levels Up to 100% of deductible with a maximum cap determined by the IRS each year. Proposed amounts for 2010:
$3,050 for single coverage
$6,150 for family coverage
Deductible Ranges For 2010:
Min.=$1,200 for single*
Min.=$2,400 for family*
Maximum Out-of-Pocket ( in network)
(Includes deductible and any expenses incurred once deductible is met.)
For 2010:
Max.= $5,950 for single
Max.= $11,900 for family
Who is Eligible? Individual must be covered under a qualified high deductible health plan, below Medicare eligibility age, and not covered under any other health plan.
Is there a "catch-up" contribution provision for older workers? Individuals age 55-65 may contribute more to the account per year.  Starting in 2009 and thereafer, an additional $1000 contribution per year is allowed.
Effective Date

Permanent Legislation effective January, 1, 2004

Do employers need to make comparable contributions? (in a group plans) Yes, however, under HSA legislation both employers and employees can contribute.

Health Savings Accounts Benefits
1. Contributions are 100% tax deductible.
2. Interest or other earnings on the assets are tax free, money grows tax deferred.
3. Money saved can be used for qualified medical expenses (for a list of the qualified expenses go to page 4 of the
(
IRS Publication 502) tax free for life.
4. MSA/HSA funds can also be used to pay COBRA or other medical insurance premiums during periods of unemployment or temporary layoff.
5. Contributions remain in your MSA until you use them. At age 65, unused MSA/HSA money can be withdrawn for non-medical reasons without penalty (similar to an IRA, ordinary income tax will be charged on the money withdrawn for non-medical reasons)

Eligible Medical Expenses

Medical care expense is defined as amounts paid for the diagnosis, cure, treatmnent or prevention of disease, and for treatments affecting any part function of the body. Medical expenses must be primarily to alleviate or prevent a physical or mental defect or illness.

An eligible expense is defined as those expenses paid for care as described in Section 213 (d) of the Internal Revenue Code. Additionally, the IRS has allowed non-prescription drugs as described in Rev. Rul. 2003-102, 2003-38 I.R.B.559. Below are two lists which may help determine whether an expense is eligible.

Below are examples of both qualified and non-qualified medical expenses. They are provided to serve as a quick reference and are provided to you with the understanding that FinallAffordableHealthCare.com is
not engaged in rendering tax advice. For more detailed information, please refer to IRS Publication 969 titled, Health Savings Acoounts and Other Tax-favored Health Plans and  IRS Publication 502 titled, Medical and Dental Expenses, Catalog Number 15002Q. Publications can be ordered directly from the IRS by calling 1-800-TAX FORM. The publication is also available at the IRS web site, www.irs.gov . You can also download HSA Basics (tri-fold brochure) -- for use in 2007 (changes for 2008 are listed above) from the IRS.

Other valuable information may be accessed at the Department of Treasury Health Savings Account (HSAs) website. Available at this website are topics relevant to HSAs, which include: IRS forms and publications, Technical Guidance, HSA Statute, All About HSAs, Fact Sheets, Tax Savings From HSA Contributions in 2007Frequently Asked Questions and various other topics of relevant interest.

The information provided here is not legal or tax advise. If legal or tax advice is required, you should seek the services of a competent professional.

 

Qualified Medical Expenses (for HSA distributions)

 Abdominal supports
 Abortion
 Acupuncture
 Air conditioner (when necessary
  for relief from difficulty in
  breathing)
 Alcoholism treatment
 Ambulance
 Anesthetist
 Arch supports
 Artificial limbs
 Autoette (when used for relief of
  sickness/disability)
 Birth Control Pills
  (by prescription)
 Blood tests
 Blood transfusions
 Braces
 Cardiographs
 Chiropractor
 Christian Science Practitioner
 Contact Lenses
 Contraceptive devices
  (by prescription)
 Convalescent home
  (for medical treatment only)
 Crutches
 Dental Treatment
 Dental X-rays
 Dentures
 Dermatologist
 Diagnostic fees
 Diathermy
 Drug addiction therapy
 Drugs (prescription)
 

 Elastic hosiery (prescription)
 Eyeglasses
 Fees paid to health institute
  prescribed by a doctor
 FICA and FUTA tax paid for
  medical care service
 Fluoridation unit
 Guide dog
 Gum treatment
 Gynecologist
 Healing services
 Hearing aids and batteries
 Hospital bills
 Hydrotherapy
 Insulin treatment
 Lab tests
 Lead paint removal
 Legal fees
 Lodging (away from home for
  outpatient care)
 Metabolism tests
 Neurologist
 Nursing (including board and
  meals)
 Obstetrician
 Operating room costs
 Ophthalmologist
 Optician
 Optometrist
 Oral surgery
 Organ transplant (including
  donorýs expenses)
 Orthopedic shoes
 Orthopedist
 Osteopath
 

 Oxygen and oxygen
  equipment
 Pediatrician
 Physician
 Physiotherapist
 Podiatrist
 Postnatal treatments
 Practical nurse for medical
  services
 Prenatal care
 Prescription medicines
 Psychiatrist
 Psychoanalyst
 Psychologist
 Psychotherapy
 Radium Therapy
 Registered nurse
 Special school costs for the
  handicapped
 Spinal fluid test
 Splints
 Sterilization
 Surgeon
 Telephone or TV equipment to
  assist the hard-of-hearing
 Therapy equipment
 Transportation expenses
  (relative to health care)
 Ultra-violet ray treatment
 Vaccines
 Vasectomy
 Vitamins (if prescribed)
 Wheelchair
 X-rays

 

Eligible Over-the-Counter Drugs (for HSA distributions)

 Antacids
 Allergy Medications
 Pain Relievers
 Cold medicine
 Anti-diarrhea medicine
 Cough drops and throat lozenges

 Sinus Medications and Nasal sprays
 Nicotine medications and nasal sprays
 Pedialyte
 First aid creams
 Calamine lotion

 Wart removal medication
 Antibiotic ointments
 Suppositories & creams for                 hemorrhoids
 Sleep aids
 Motion sickness pills

Ineligible Medical Expenses

 Advancement payment for services to be rendered next year
 Athletic Club membership
 Automobile insurance premium allocable to medical
   coverage
 Boarding school fees
 Bottled Water
 Commuting expenses of a disabled person
 Cosmetic surgery and procedures
 Cosmetics, hygiene products and similar items
 Funeral, cremation, or burial expenses
 Health programs offered by resort hotels, health clubs, and
   gyms
 Illegal operations and treatments
 Illegally procured drugs
 Maternity clothes
 

 Non-prescription medication
 Premiums for life insurance, income protection, disability,
   loss of limbs, sight or similar benefits
 Scientology counseling
 Social activities
 Special foods and beverages
 Specially designed car for the handcapped other than an
   autoette or special equipment
 Stop-smoking programs
 Swimming pool
 Travel for general health improvement
 Tuition and travel expenses a problem child to a particular
   school
 Weight loss programs

Ineligible Over-the-Counter Drugs

 Toiletries (including toothpaste)
 Acne treatments
 Lip balm (including Chapstick or Carmex)
 Cosmetics (including face cream and moisturizer)
 Suntan lotion
 Medicated shampoos and soaps

 Vitamins (daily)
 Fiber supplements
 Dietary supplements
 Weight loss drugs for general well being
 Herbs

Health insurance may not be purchased with HSA Funds. There are three (3) situations which are exceptions whereby HSA funds can be used to pay for:
1) A health plan during any period of continuation coverage required under any Federal law
2) A qualified long-term care insurance contract
3) A health plan during a period in which the individual is receiving unemployment compensation under any Federal or State Law.

4) For individual over age 65, premiums for Medicare Part A or B, a Medicare HMO and /or the employee share of premiums for the employer-sponsored health, including premiums for employer=sponsored retiree health insurance.

 

Tax Considerations Recap

Health Savings Accounts create unique tax benefits for accountholders/individuals.

  • Contributions are 100% tax-deductible
  • Funds grow on a tax-deferred basis, and if the funds are used for an eligible medical expense, the funds are tax-free
  • Funds roll over from year to year, and funds used after age 65 are able to be used tax-free for eligible medical expenses or at your normal tax rate for any other reason

Over the life of your Health Savings Account, you could save thousands of dollars in taxes.

Example: If you had a deductible of $3,000, contributed your maximum amount ($3,000) each year, estimate you will use $500 each year on medical expenses, fell in the 28% tax bracket, have a state sales tax of 5%, you were 40 years old, planned to contribute to your HSA until you were 65 years old and anticipated a three percent average interest rate, you could expect a tax savings of $9,453.89.

Federally qualified Health Savings Accounts are tax-deductible, tax-deferred and tax-free.

Tax-deductible - Contributions to your HSA are able to be deducted from your gross income.

Tax-deferred - HSA funds grow without being subject to taxes until they are used for non-eligible medical expenses.

Tax-free - The funds in an HSA are completely tax-free when used for eligible medical expenses.

 

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IMPORTANT CONSIDERATION:

Take 7 minutes and listen to this presentation on the financial risks and the importance understanding the exposure of Individual Health Insurance verses Group Health Insurance in wealth preservation and retirement planning.

Interested in a quote for a tax-favored HSA qualified High Deductible Health Plan (HDHP): click here

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New Laws:

The Tax Relief and Health Care Act of 2006 that was signed into law on December 20, 2006 makes it easier to build HSA funds. For complete information on all the HSA changes for 2008, go to the U.S. Treasury website. click here

 

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HSA Application and Eligibilty Form 

Checklist Custodial Agreement
and Beneficiary Form 

HSABank Online Enrollment

____________________________________________________________________________________________________

This list contains examples and is not intended to be all inclusive. FinallyAffordableHealthCare and its affiliates are not engaged in rendering tax or legal advice. If tax or legal adviceis needed, consult your tax or legal advisor. FinallyAffordableHealthCare markerts insurance product underwritten and issued by major health insurance carriers listed on this site.

 

 

 


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