Health Savings Accounts

Federal legislation enacted in late 2003 authorized the creation of Health Savings Accounts or HSA's. These dedicated savings account plans are combined with high-deductible health policies. Because high-deductible plans generally cost less than low-deductible plans, HSA's are an excellent option for small business employers who cannot currently afford a comprehensive or low-deductible health benefits option. Both small business employers and their employees are free to contribute when using an HSA based plan structure. The total annual employer-employee contributions to the health savings account may amount to as much as one-hundred percent of the HSA health plan's annual deductible amount and can be used to cover any and all qualified medical or health related expenditures. The savings account itself is wholly administered by the employee it covers and is primarily intended to pay for smaller to routine healthcare expenses.

Once the HSA's annual deductible amount has been satisfied, any additional employee health care related expenses are covered in a manner conforming to the provisions of their overall health insurance plan. For instance, a covered employee could then be responsible for ten percent of the cost of general practitioner care supplied by a PPO in-network provider. Deposits into health savings accounts are 100% tax-free to both employers and employee alike and any leftover monies that have not spent on care by the end of the fiscal year may be rolled over in order to cover future medical expenses. Cash amounts may be withdrawn from an HSA account for any reason, but those not withdrawn for eligible medical expenditures are subject to a ten percent penalty and will be included in an employee participant's gross income tally for income tax purposes.

The out-of-pocket expenses, contribution limits and annual deductible amount are indexed to ensure that that conform to national inflation rates. In 2004, the HSA Plan limits for individuals were:

• Total yearly out-of-pocket expenditures other than premium amounts for all HSA covered benefits not to go beyond $5,000.00

• An annual deductible amount of $1,000.00 or more.

• Yearly employer-employee plan contributions not to exceed the lesser of one-hundred percent of the annual deductible or $2,600.00

In 2004, the limits for HSA family plans were:

• Total annual out-of-pocket expenditures (not including the plan premium) for HSA plan covered benefits not to exceed $10,000.00

• A deductible amount of $2,000.00 or more.

• Yearly employee-employer HSA plan contributions not to exceed the lesser of 100% of the HSA's annual deductible or $5,150.00

Both couples and individuals aged fifty-five and older are free to contribute more to the HSA account than the above stated amounts per year.

For instance, in a plan structured for its married workforce, a small business employer could provide a family oriented policy that had a $5,000.00 annual deductible amount while depositing sixty percent of said deductible (or $3,000.00) into each of their employee's HAS account at the beginning of each year. Their workforce would still be responsible for their first $5,000.00 in health care costs, but they would then each have $3,000.00 in their personal HSA accounts with which to pay medical expenses (and could have even more if they, also, made contributions to their HSA). If employees or their families exhaust said $3,000.00 HSA allowance, they would then be responsible for paying the next $2,000.00 out-of=pocket, whereupon their insurance policy would begin reimbursements.

Note: The Archer Medical Savings Account or MSA account plan that discontinued on December 31, 2003 was a federally qualified program that allowed self-employed individuals or individuals employed by a small business with fifty or fewer full-time employees to establish a medical savings account in conjunction with a high-deductible health insurance plan. Though Archer MSA's may no longer be established rollovers from previously established Archer MSA's into HAS's plan accounts are permitted, and those individuals who already have an Archer MSA may keep them.