Healthcare Savings Accounts are here!

[mickeyd]

HSAs seem destined for success, problems and all
Health saving accounts have been slow to catch on. Despite glowing praise from administration officials, and even the president on several occasions, HSAs have been under-subscribed.

Nevertheless, their time will come, since HSAs have clearly been designed to provide definite advantages to a broad range of employers, employees and self-employed individuals.

HSAs have been available since Jan. 1, 2004. They provide upfront deductions, tax-free deferral of earnings and tax-free distributions. In fact, HSAs represent the first opportunity for most individuals to get an upfront deduction for contributions to a tax-deferred vehicle and then escape income tax on the distribution of those contributions and earnings. The policy reason behind this beneficence is to encourage patients to be price-conscious consumers of medical services.

There are several reasons for HSAs’ slow start.

The enabling legislation was signed only last December. Banks, insurance companies and other potential trustees have had scant time to ramp up their paperwork to offer them to the public. Most individuals who have been approaching their bank or broker to set one up have not gotten very far. Only a few insurance companies that had been handling medical savings accounts were prepared.

Finally, the rules themselves are not only complicated, but also vague on a number of counts. Questions are arising as to how the requirements for HSAs and their related high-deductible health plans relate to real-life health benefits actually being offered in the marketplace.

Now or later?
The IRS took a stab at clarifying the rules earlier this year, and has promised more guidance by June. Nevertheless, many practitioners are assuming that, with almost half the year gone, the time for setting up HSAs for 2004 has passed.

Under normal circumstances, the maximum amount allowed to be contributed to an HSA is determined pro rata by month. However, to help jump-start HSAs, Notice 2004-24 provides that, as long as the HSA is established by April 15, 2005, it may be used to pay for qualified medical expenses incurred in calendar year 2004.

For 2004 only, maximum contributions will be determined based on the months in which the high-deductible plan is in place, not when both the HDHP and the HSA are in existence. On an annual basis, contributions are allowed up to the lesser of 100 percent of the annual deductible or $2,600 ($5,150 for family coverage), plus an extra $500 catch-up contribution for individuals age 55 or older.

For 2004 and 2005 only, the Internal Revenue Service also removed another roadblock to setting up an HSA. Some employers had set up HSAs under the assumption that prescription drug benefits, like vision and dental care, routine physicals and the like, were exempt from the high-deductible limit. Others have been holding back on HSAs under the opposite assumption. While the IRS clarified that prescription drugs are not generally exempt for the overall high deductible, it announced in Notice 2004-23 a “transition rule” that makes them exempt for 2004 and 2005.


Spouse as family
For 2004, a qualifying HDHP is one with an annual deductible of at least $1,000 for individual coverage or $2,000 for family coverage. “Family,” for this purpose, includes spouses, even in situations without children. This definition unfortunately leads to a marriage penalty that will impact whether some couples should opt for an HSA.

Many policies today require a per-person deductible but set the family deductible as the cap after which no deductible is imposed for other family members. Under the HSA rules, however, the HSA owner and his spouse in combination must reach the $2,000 level before any medical expense is reimbursed.

For example, a married owner with $1,400 in medical expenses cannot be reimbursed by an HDHP at all, while a single owner would be entitled to $400 as qualified for reimbursement.

Another downside of being one “family” involves the minimum amount considered as the deductible in qualifying the plan as an HDHP. If both spouses are covered by plans, the one with the lowest family deductible determines whether either is qualified for an HSA.
Conclusion
As had been the case with new Roth IRAs after the 1997 Tax Act, the rules for HSAs are taking a while to work out. While this confusion justifiably has some taxpayers sitting on the sidelines for the moment, HSAs, like the Roth IRA, appear to be here to stay.

Predictably, those taxpayers most in need of medical services on a continuing basis for chronic illnesses will not fare as well under the HDHP/HSA combination as they have under tradition health plans. Nevertheless, marketplace pressures for viable medical insurance alternatives continue to increase as premiums continue to outpace inflation.

HDHP/HSAs can lower, or at least hold down, medical insurance costs for many employers while keeping most employees reasonably satisfied with the result. The lure to some workers of “hitting the jackpot” by being able to roll over HSA contributions in a significant nest egg because of good health will help their acceptance.


May 2004

[unclemick]

Still totally uninsured. The idea of a JOB/SELF EMPLOYMENT sucks - whether real or mythical. Doesn't sound like a good deal for ER's who might aspire to a 'Terhorst' type lifestyle. Or 'hardheads' like me.

Hey unclemick, when you say you are "totally
uninsured", do you mean that you have no insurance of any kind? The here topic is healthcare and I know your home is uninsured. Man, I'm a risk taker but even I couldn't handle no insurance. I will say though that even at age 60 I would have been miles ahead financially if I'd
had the guts to do it, or at least buy only what was
mandated (car insurance for example). I spent a pile in the past when I had deluxe health insurance. I would
have been more careful if I had been paying for it myself.

John Galt

[unclemick]

John

No health, life, home, etc -BUT have minimum state required car insurance and general public liability (New last year) a a condition of leasing my patch of swamp. I will do due diligence this year after my 61st BD JUL) on health insurance. The women have health insurance AND 'independant' portfolio's. Remember I'm single.

[Lancelot]

Mickeyed-Good info on the Health Savings Accounts. Interesting read.

Unclemick-I'm rolling the dice too (totally uninsured.) Health care is a bargain in Thailand; here we go to the hospital to see the doc. Costs about $10 to $12.50 for the doctor's fee, plus meds.

If I need anything done, I always ask the doc for an "estimate" and they never bat an eye and give me a very accurate number. Here the patient is still a customer.

If I were living in the US, I probbably would opt for a high deductible (5 to 10k) plan though.

Lance

[unclemick]

This july, after eleven years without(49-61), I will look again - something like simplecare or high deductible(10k). 350/mo for 10k ded. was ballpark at age 60 when I did a spot check last year. Strikes me as high. Then there's the bizarre - renew my passport and research going abroad to someplace cheap - for the 'really expensive stuff'. Wouldn't work for car wrecks and cardiac arrest though. Apparently - the fix is in - you can't get a 50k deductible - like Met Life? - offered 25? years ago.

[Lancelot]

Quote:

This july, after eleven years without(49-61), I will look again - something like simplecare or high deductible(10k). 350/mo for 10k ded. was ballpark at age 60 when I did a spot check last year. Strikes me as high.

I have not shopped for health -or any insurance- for awhile, but 10k deductible for $350/month sounds really high....

[Michael]

I know people that were quoted monthly rates over $1000. It all depends upon your age and health. Our politicians have driven the cost of health care to the moon with their endless monopolies, and we have to suffer through high insurance premiums as a result. I was reading an artilcle in the WSJ explaining why hearing aides cost $2000 instead of $100 here. It was all a matter of monopolies the politicians had granted to certain groups to dispense the things. This added cost gets added right on top of insurance premiums. If we could find a way to export all of our politicians to Thailand, we would be better off. Of course, I don't think Thailand actually wants them, since you want affordable health care.

[Lancelot]

Quote:

It was all a matter of monopolies the politicians had granted to certain groups to dispense the things. This added cost gets added right on top of insurance premiums. If we could find a way to export all of our politicians to Thailand, we would be better off. Of course, I don't think Thailand actually wants them, since you want affordable health care.

Nichael,

I think we better leave those Pols in the USA; Thailand has enough "creative" homeboys as it is

Lance

Quote:

Our politicians have driven the cost of health care to the moon with their endless monopolies, and we have to suffer through high insurance premiums as a result.

I wouldn't put the blame in the politicians direction. It's uncontrainstrained capitalism! The politicians are only paid to look the other way!

Monopolies are the capitalists dream!

[ganda]

Quote:

*I was reading an artilcle in the WSJ explaining why hearing aides cost $2000 instead of $100 here. *

It's the minimum wage all those aides are entitled to that drives up the price. Minimum wage just for listening for you?! Sheesh.

[Michael]

Quote:

The politicians are only paid to look the other way!

They do a bit more than look the other way. I was reading an article in my father's AARP magazine today. It told of a bus filled with seniors buying their meds in Canada. On the way back, the bus was boarded by government agents that searched through their belongings looking for the meds that they were importing. Your tax dollars at work, harrassing the elderly in the name of monopoly.

[Michael]

Quote:

Minimum wage just for listening for you?!

If seeing eye dogs start getting minimum wage, we are doomed.

[ganda]

Quote:

If seeing eye dogs start getting minimum wage, we are doomed. *

Aye, the country will have literally gone to the dogs.

[unclemick]

?? Are HSAs real or just a myth. Do any posters to this forum actually have onne?? If so under what circumstances.?? Has anybody creatively used an HSA in ER?

After eleven years in ER, I'm thinking at age 61 - possibly, just possibly to get somehealth insurance rather than push my luck until medicare at 65. One hair line wrist fracture (remodeling) out of pocket so far.

REHP has an article on health insurance - touching on methods to 'game' the system - any real life stories? The best was a 48 yr temp I worked with in 96 who kept his student medical (MBA thesis) from Arizona while working.

[Peter]

Quote:

?? Are HSAs real or just a myth. Do any posters to this forum actually have onne?? If so under what circumstances.?? Has anybody creatively used an HSA in ER?

Unclemick, I have had an MSA (the predecessor of HSAs) for several years now. It morphs into an HSA this year. Currently my insurance is the Blue Cross of California EPO plan, and the savings account is with Home Federal.

So far it has worked as expected. I pay the discounted rate for medical costs within the deductible, using checks on the MSA/HSA account. This money is of course pre-tax. No questions, no hassles, TurboTax deals with the IRS issues.

Of course, for the whole setup to be worthwhile, you have to (a) have some employment income, and (b) be paying tax. I work about 20 hours per week and hence satisfy both requirements.

Peter

[unclemick]

Great - Thanks Peter

Now ?? any 'self employed' or 'hobbist's' out there - with HSAs??

[Michael]

Quote:

Of course, for the whole setup to be worthwhile, you have to (a) have some employment income...

Why does one need employment income for it to be worth while?