HEALTH SAVINGS ACCOUNTS

1.   What is a Health Savings Account (HSA)? As authorized by Congress through the Medicare Prescription Drug, Improvement and Modernization Act of 2003, an HSA is federally tax-exempt trust or custodial account similar to a Roth IRA.  The money in an HSA is invested in funds established by the financial institution holding the account.  Contributions to the account, interest earned in the account and withdrawals for medical expenses are exempt form Federal Income Tax. 

2.   Does anyone qualify for an HSA?  To qualify for an HSA, you must be enrolled in a qualified high deductible, health plan (HDHP).  You cannot be covered by another health plan for services covered by the HDHP, be enrolled in Medicare, or be a dependent on another person�s health coverage. 

3.   What can you use the money accumulated in an HSA for?  In order to avoid paying tax or penalty, on the funds in an HSA, the funds should be spent on only IRS qualified medical expenses.  Examples include, but are not limited to, the deductible, copays and coinsurance in the HDHP, prescriptions, certain over-the-counter drugs, hearing aids, dental services, vision services, LASIK surgery, long term care premiums and COBRA premiums.  The determination of what constitutes qualified medical expenses is defined in section 213(d) of the Internal Revenue Code. 

4.   How does the funding work?  The HSA must be pre-funded before reimbursements for qualified medical expenses can be made. 

5.   Does the employee retain the funds upon termination?  Yes, because the HSA belongs to the employee. 

6.   Do unused funds roll over into next year�s account?  Yes, the funds continue to accumulate and can be used for qualified medical expenses without tax or penalty at any time.

7.      What are the minimum and maximum amounts to fund an HSA?  The maximum amount that can be contributed to an HSA annually is the amount of the deductible in the corresponding HDHP.  Catch up contributions, at levels determined by the regulations, are allowed every year after the age of 55.

8.      Does the Employer Benefit in Taxes?  The House unanimously approved legislation, sponsored by Rep. Scott W. Boyd, that would provide tax credits to small businesses that offer employee health insurance benefits through Health Savings Accounts (HSA) and contribute to employees; HSAs.  This Bill offers a tax credit to employers based on the amount of money they contribute to an employee�s HSA.  The tax credit would be offered at two different levels:

a.          50% of the amount contributed on behalf on the employee, spouse and dependants.

b.         25% of the amount contributed on behalf of the employee alone.

      House Bill 734 now moves to the PA Senate for consideration.

For more information contact

PBA Benefits Trust at (800)222-3160

Courtesy of Capital Blue-Cross & PBA