In the United States, the term “health insurance” is used to refer to any program that pays for medical expenses. This could be private insurance, government-funded social insurance, or social insurance. This usage is also known as “health coverage”, “health care coverage”, “health benefits” or “medical insurance”. The term can also be used in a technical sense to refer to any type of insurance that offers protection against injury or illness.
The American health insurance industry has seen rapid changes over the past few decades. Indemnity insurance was the most common type of health insurance in America. Fee-for-service is often used to describe indemnity insurance. This is traditional insurance that covers health care services. The provider, usually a hospital or doctor, is paid a fee per service. The consumer-driven health care (CDHC) is an important component of indemnity plans. Individuals and their families can have more control over their health care. They can choose when, how, and what type of care they want.
However, these plans have higher deductibles which the insured must pay out of their own pockets before they can receive insurance money. Health Reimbursement plans (HRAs), Flexible Spending Accounts(FSAs), high-deductible health plans (HDHps), Archer Medical Savings Accountss (MSAs), and Health Savings Accountss (HSAs) are all consumer driven. The Health Savings Accounts, which are the most recent, have seen rapid growth over the past decade.
What is a HEALTH SAVINGS ACCOUNT?
The tax-advantaged HSA (Health Savings Account) is an account that allows taxpayers to save money on medical expenses. The federal income tax is not applicable to funds that are deposited to the account. They can be used at any time to pay qualified medical expenses without federal tax liability.
Another advantage is the rollover of funds from Health Savings Accounts. They accumulate year after year, even if they are not used. The funds can be withdrawn at retirement by employees without tax liability. Federal income taxes are not applicable to withdrawals for qualified expenses or interest earned. The U.S. Treasury Office states that a Health Savings Account can be used as an alternative to traditional insurance. It is a savings product that allows consumers to pay for their healthcare in a different manner.
HSA’s allow you to save tax-free for future qualified medical or retiree expenses as well as pay current health costs. The Health Savings Account aims to improve the efficiency of America’s health care system, and encourage responsible and prudent behavior in regard to their health care needs. It is a consumer-driven health care plan.
Origin of Health Savings account
The Medicare Prescription Drug, Improvement and Modernization Act, which was passed by Congress in June 2003 and by the Senate in July 2003, established the Health Savings Account. President Bush signed it on December 8, 2003.
Eligibility
These individuals are eligible for a Health Savings Account.
– Individuals who have a High Deductible Healthcare Plan (HDHP).
– For those not covered by any other types of health insurance.
– For those not enrolled in Medicare4.
There are no income restrictions on HAS contributors and no requirements to have earned income. HAS’s cannot be established by people who are dependent on the tax returns of others. Children cannot set up HSA’s on their own.
What is a High-Deductible Health Plan (HDHP)?
Anyone who wants to open a Health Savings Account must enroll in a high-deductible health plan (HDHP). The Medicare Modernization Act, which created the HSAs, gave the HDHPs a boost. A high-deductible health plan is a type of insurance that has a certain deductible. Before an insured person can receive insurance money, they must have reached this threshold. It doesn’t cover medical expenses up to $1000. Individuals are responsible for paying out-of-pocket expenses.
A number of HDHPs include immunizations and preventive care. This means the individual will be reimbursed. Individuals (employers and self-employed) can take HDHPs. Insurance companies across America are offering HDHPs in 2008 with deductibles starting at $1,100 for Self coverage and $2,200 to Self and Family coverage. For self, the maximum out-of-pocket limit for HDHPs is $5600 and $11,200 respectively for Self and Family enrollment. These limits are known as IRS limits and are established by the Internal Revenue Service (IRS). The relationship between the deductible and the premium paid is in HDHPs is inversely proportional. Higher deductibles equal lower premiums and vice versa. HDHPs have two main benefits: they will lower healthcare costs and make it more affordable for patients. It is logical that patients who are fully insured (i.e. Patients who have low deductibles on their health insurance tend to be more cost-conscious and less concerned about their health.
Opening a Health Savings account
HSAs can be signed up at banks, credit unions and insurance companies. HSAqualified insurance plans are not available from all insurance companies. It is therefore important to choose an insurance company that offers this type qualified plan. An employer might also offer a plan to employees. The account remains the property of the individual. Online enrollment for HSA-qualified insurance is possible in all 50 states, except Hawaii, Massachusetts and Minnesota.
Contributions to the Health Savings Account
HSA contributions can be made by the individual who has the account, an employer, or any other person. The employer can make the contribution, but it is not included in an employee’s income. It is exempted of federal tax if it is made by the employee. The maximum amount you can contribute (and subtract) from any source to an HSA for 2008 is:
$2,900 (self-only coverage)
$5,800 (family coverage)
These limits are established by the U.S. Congress via statutes, and are adjusted annually for inflation. Individuals over 55 years old can deposit an additional $800 in 2008 and $900 in 2009. The maximum amount that an individual can contribute depends on how many months he has been covered by HDHP (pro-rated basis). You are permitted an HSA contribution of $6/12, $5,800 or $2,900 if you have family HDHP coverage between January 1, 2008 and June 30, 2008. You can contribute to an HSA 6/12 x $5800 plus 6/12 x $2,900 if you have family HDHP coverage between January 1,2008 and June 30, 2008. This will give you $4,350. An individual can contribute to an HSA if he/she opens an HDHP the first day of each month. If he/she creates an account on a different day than the first, he/she can contribute to HSA starting the next month. You can make contributions as late as April 15, the year following. Individuals who contribute to the HSA beyond the contribution limits must withdraw them or pay an excise duty. The excess amount withdrawn must be refunded to the HSA.
Contributions from the Employer
Under a Section 125 plan, the employer can contribute to an employee’s HAS account. It’s also known as a cafeteria program. Contributions made under the cafeteria program are pre-tax, i.e. They are not included in the employee’s income. Employers must contribute on a similar basis. Complementary contributions are those contributions made to HSAs by all employers that are either the same amount or a similar percentage of the annual contribution. Part-time employees working less than 30 hours per week can be treated separately. Employers can also classify employees as either self-only or family coverage. The employer can make automatic contributions to an employee’s HSAs unless the employee chooses to not have them.
Withdrawals from HSAs
The HSA is owned and can be used to make qualified expenses. The employee also determines the amount to be deposited, the maximum amount to withdraw for qualified expenses, the company that will keep the account, and the type of investments to grow it. The funds can be transferred from one year to the next. There are no rules about how to use them or lose them. HSA participants don’t need to get approval from their HSA trustees or their medical insurance before they can withdraw funds. The funds are exempted from income tax if used for qualified medical expenses. Qualified medical expenses are expenses that are covered by the HSA, but which are subject to cost sharing, such as a co-payments or deductibles; durable medical equipment like eyeglasses and hearing aids; as well as transportation costs related to medical care. You are also eligible for non-prescription and over-the-counter medicines. Qualified medical expenses must be incurred after the HSA was established.
You can take tax-free distributions from your HSA to cover qualified medical expenses for the spouse, HDHP member or dependent. However, you must ensure that the expenses were incurred within the last year of setting up the HSA. Keep the receipts for expenses incurred through the HSA. They may be required to prove that the HSA withdrawals were for qualified medical expenses only. To prove that the deductible was met, the individual may need to show the receipts to the insurance company. Unqualified medical expenses are not eligible for withdrawals. If so, the amount withdrawn will be considered taxable and added to the individual’s income. This can also lead to a 10 percent penalty. The money cannot normally be used to pay premiums for medical insurance. However, there are exceptions in certain situations.
These are –
1) To pay for any coverage in a health plan while you are receiving federal or state unemployment benefits.
2) COBRA continuation coverage for employees who leave a company offering health insurance coverage.
3) Qualified long-term care insurance.
4) Medicare premiums, out-of-pocket expenses and deductibles for Part A (hospital and Inpatient Services), Part B (physician, outpatient Services), Part C (Medicare PPO and HMO plans), and Part D (prescription drug).
However, withdrawals from the Health Savings Account can be made if an individual is disabled, dies or turns 65. In this case, withdrawals are exempt from income tax and subject to a 10 percent penalty, regardless of their purpose. You can withdraw funds from your HSAs in many ways. Some HSAs offer account holders debit cards, others with cheques, and some allow for reimbursement similar to medical insurance.
