HEALTH SAVINGS ACCOUNTS (HSA)
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The acronym “HSA” is used by many people in a
very generic way that is creating a lot of confusion. There are HSA health plan designs and HSA accounts.
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The intent in the creation of HSA accounts was
to allow individuals to fund a tax-favored account to use for Qualified Medical
Expenses when used in conjunction with an HSA-compatible health plan. In addition, the account is owned by the individual
and the money in the account rolls over year to year (i.e., no “Use it or lose
it”). On the surface these are very
similar to Flexible Spending Accounts (FSAs).
But the HSA accounts have some significant differences such as
individual ownership and portability, roll-over of funds. In addition, shareholders and members of S
Corporations and LLCs may also use HSA accounts.
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HSA-Compatible Health Plans
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HSA-compatible plans are characterized by high
deductibles. The Federal government
specifies what the minimum deductible will be each year. For 2011 the minimum deductible is $1,200
for a plan covering an individual and $2,400 for a plan covering an individual
with at least one additional dependent.
Many HSA-compatible plans also have an “Integrated Deductible,” meaning
the deductible also applies to prescription drugs. So if you have an HSA-compatible plan, the insured will be
responsible for the 100% of the covered expenses until the deductible is met
during the policy or calendar year (however the plan is set up).
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If you enroll in an HSA-compatible health plan,
then you are eligible to open an HSA account.
An HSA account can be use to pay for deductible expenses along with
other Qualified Medical Expenses (similar to FSA qualified expenses). The advantage you receive from using an HSA
account is the expenses you pay for will effectively be discounted at your tax
rate. For example, if you tax rate is
32%, then you will save $32 for every $100 you spend with your HSA account. In this case, the tax benefit is $32. And the tax benefit is an “above-the-line
deduction meaning it is a direct reduction in your tax liability regardless of
whether you itemize or receive the Standard deduction.
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Most banks can be chosen to be the trustee of an
HSA accounts. Be very careful when
choosing a trustee. The IRS regulates
HSA accounts and there are details you should be aware of. HSA accounts are not simple banking
accounts. You want to choose a trustee
that; (1) has strong customer service, and (2) is experienced with the IRS
rules. Contact Bridgeport Benefit
Advisors to ask us whom we trust in managing HSA accounts.
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Many employers are choosing HSA-compatible
health plans due to the high cost of health insurance premiums. Bridgeport Benefit Advisors believes
HSA-compatible plans and HSA accounts, when working properly, are a great way
to receive rich benefits and to reduce costs.
But if you employees do not have sufficient personal cash flow, these
plans, without some assistance, is not what we recommend. Low premiums may help you in the short term,
but when employees have large out-of-pocket expenses without some support,
these plans will create an illusion that there is no health insurance. Additionally, many people will be frustrated
with the record keeping required to take care of all of the expenses. Bridgeport Benefit Advisors has an approach
for our clients that will consume about 30 minutes each year to take care of
all HSA related expenses. We will
educate you and make it work for you.
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For more information, please contact Bridgeport Benefit Advisors.
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