CFP

Group Medical Insurance - Health Savings Accounts

HSAs are tax-advantaged plans used to accumulate dollars to pay for medical expenses. HSAs were established by the Medicare Prescription Drug and Modernization Act of 2003.

Eligibility
Individuals under age 65 participating in a high-deductible health plan defined below. Covered individuals include the HSA owner, spouse and dependents. According to the IRS, the 2007 minimum annual deductible and maximum annual deductible and other out-of-pocket expenses for HDHPs are:

  • Individual - $1,100 minimum deductible with a $5,500 out-of-pocket expense maximum.
  • Family - $2,200 minimum deductible with a $11,000 out-of-pocket expense maximum.
Funding
Annual contributions to an HSA of up to 100% of an individual's health plan deductible may be made. The numbers for 2007 are $2,850 for self-only HDHP coverage, and $5,650 for family HDHP coverage. (In 2008 self-only HDHP coverage will be $2,900 and $5,800 for family HDHP coverage). Individuals between the ages of 55 to 65 may make catch-up contributions.

Taxation
Earnings grow tax-free. Account beneficiaries may withdraw money tax-free for current and future qualified health care costs including:

  • physician's fees
  • retiree health insurance premiums
  • COBRA coverage
  • qualified long-term care services
  • Medicare expenses
  • (non) prescription medications
  • needed hospital services not covered by insurance.
Non-qualified withdrawals are taxable as ordinary income and subject to a 10% penalty.

HSAs are portable and may accumulate over time. Tax-free transfer to a spouse is permitted upon the owner's death.

Refer to Publication 969 on the IRS website for further details on HSA plans here.


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