HEALTH SAVINGS ACCOUNTS (H.S.A.)

ADVANTAGES

n        Tax Savings – An H.S.A. provides triple tax savings:
§         Tax deductions when you contribute to your account
§         Tax-free earnings through investment
§         Tax-free withdrawals for qualified medical expenses
§         Tax-free distributions can be taken for qualified medical expenses of spouse and/or dependents even if they are not covered by the H.S.A.
§         For in-network providers, once the deductible is met, the insurance company pays 100% of the ongoing medical expenses.  (There are some exceptions such as mental health/substance abuse – see the plan for more details)

 n        Security – The H.S.A. protects you against high or unexpected medical bills. 

n        Flexibility – Use the funds in your account to pay for qualified medical expenses, including expenses your insurance may not cover, or save the money in your account for future needs such as:
§         Health insurance or medical expenses if unemployed
§         Medical expenses after retirement (before Medicare)
§         Out-of-pocket expenses when covered by Medicare
§         Long-term care expenses and insurance

 n        Savings – Save the money in your account for future medical expenses and grow your account through investment earnings.

n        Control – You make all the decisions about:
§         How much money to put into the account
§         Whether to save the account for future expenses or pay current medical expenses
§         Which medical expenses to pay from the account
§         Whether to invest any of the money in the account
§         Which investments to make

n        Portability – You keep the H.S.A. even if you:
§         Change jobs
§         Change your medical coverage
§         Become unemployed
§         Move to another state
§         Change your marital status

n        Ownership – Funds remain in the account from year to year (there are no “use it or lose it” rules)
n        Preventative Services – Not subject to deductible and covered 100% (refer to Highlight sheet for complete details of benefits)

QUALIFIED MEDICAL EXPENSES (Partial List)

n        Deductibles, co-payments and coinsurance.
n        Prescriptions and over-the-counter drugs (i.e. aspirin).
n        Dental services including braces, bridges and crowns.
n        Vision care including glasses and lasik eye surgery.
n        Psychiatric and certain psychological treatments.
n        Long-term care services.
n        Medically related transportation and lodging.
n        Certain health premiums including COBRA (but not premiums while an active employee)

 The detailed list of qualified medical expenses is the IRS Section 213(d).  Non-prescription (over the counter) medications are described in Revenue Ruling 2003-102, 2003-38 (I.R. B. 559)

DISAVANTAGES

n        If you incur major expenses early in the plan year, you may have to pay more out of pocket versus your current plan.
n        Office visits – you will no longer pay a co-pay at the time of the office visit.  You will be liable for the discounted office visit charge when you receive your Explanation of Benefits report (up to the deductible).
n        Prescription drugs – you continue to pay the discounted price (up to the deductible).
n        If you withdraw funds for non-eligible expenses, the withdrawal will be subject to income taxes as well as a 10% penalty (if under age 65).

REMIDER

 KEEP the receipts for all your expenditures.  If audited by IRS, to avoid the unfavorable tax consequences outlined above, you will have to prove that you used the money in your account for only qualified medical expenses.