The newest form of a medical savings accounts is a Health Savings Account (HSA). According to the United States Department of the Treasury, "HSAs were created by the Medicare Bill signed by President Bush on 12/8/2003" and first made available in January 2004. If you enroll in a qualified high deductible health plan (a plan with a minimum deductible amount as defined by the IRS), you can set aside money on a pre-tax basis in an HSA to pay for future health care costs as defined by IRS Code Section 213(d) and in IRS publication 502. Except for preventive care, with a high deductible health insurance plan, you must meet the annual deductible before the plan pays benefits. Preventive care services, however, can be covered by your insurance company before you meet your deductible. .
Definition of HSA
A Health Savings Account is a bank account (not a medical plan) you can open to deposit money tax free up to a limit established by the IRS. Once the money is in the account, it can be withdrawn to pay for qualified medical expenses as defined by IRS publication 502. Unused money stays in your account from year to year, and you do not pay taxes on the contributions or earnings made. Plus, the funds belong to you and go with you if you change jobs or retire.
Medical expenses defined
The money in your HSA account is used on qualified medical expenses. IRS Code Section 213(d) states that a qualified medical expense must be primarily to alleviate or prevent a physical illness or mental defect or illness. In addition to the obvious costs such as going to a doctors office, hospital or prescription drugs the IRS also allows for other expenses such as eyeglasses, medically necessary contact lenses and certain medical supplies such as bandages. If you use your HSA money on an expense that does not qualify as a medical expense, the money is taxed as regular income and you pay a 10 percent penalty if you are under the age of 65.
Who can have an HSA?
HSAs are available to you if you:
1. Are covered by a high deductible health plan (HDHP)
2. Are not on Medicare Benefits
3. Are not insured under another health insurance plan which is not a qualifying high deductible health plan
4. Are not covered by a flexible spending account (FSA)
5. Cannot be claimed on someone else's taxes
What is preventive care?
Annual checkup
Preventive as defined by Dictionary.com is "Something that prevents or slows the course of an illness or disease." Preventive care is the services covered when you visit your general practitioner or primary care physician for your annual checkup. Preventive care does not include services for treatment of an existing condition. It is for diagnosing or discovering new conditions.
For instance, if you go to your doctor for your annual checkup and you learn you have high blood pressure, the exam was still preventive because you did not know you had high blood pressure before your visit. However, if you have diabetes and get regular checkups to monitor your diabetes, these would not be considered preventive care because you already had and are being treated for diabetes.
Considerations
Upon death, the remaining balance in your HSA is included in your gross estate for estate tax purposes. If the beneficiary you chose when setting the account up is your surviving spouse, the HSA belongs to the spouse and she can deduct the account balance in determining your taxable estate. If the beneficiary is someone other than your spouse, the HSA ceases to exist, and the beneficiary must include the fair market value of the account in his gross income for tax purposes. If no beneficiary is named, the tax is payable by the estate or the beneficiary of the estate.
Tags: deductible health, high deductible, high deductible health, deductible health plan, health plan, Preventive care
