Under the legislation passed by Congress, the HSA must be coupled with a high-deductible medical insurance plan. Individuals pay small medical bills out of their own pocket up to the deductible but have medical coverage in case of serious illness or accident. $1,350 deductible plan with a total out of pocket maximum of $6,650 per individual, and aggregate deductibles of between $2,700 with a maximum of $13,300 out-of-pocket for families.
Health Savings Account (HSA) plans offer the ability to build up savings to pay for future medical expenses as a tax exempt savings account that is owned by you and managed by a financial institution. Like an IRA, contributions to an HSA are tax deductible and continue to grow tax deferred. Also, you can still deduct 100% of your monthly premium if you are self-employed. The cost of a high-deductible health plan is lower than a low-deductible plan. The contributions to an HSA can be used to pay for health care that is not covered under your traditional or PPO individual health plan. Examples of some of these forms of treatment are vision, acupuncture, chiropractic, or dental care. All of your unused contributions to the HSA will continue to grow. At age 65, you can use these accumulated funds as retirement income or to offset future health care costs such as long term care. All of the money deposited into your personal HSA is your money. If you change jobs or move, your HSA account still belongs to you.
Contributions are allowed up to 100% of the health plan deductible. The maximum annual contribution is $3,450 for self-only policies and $6,900 for family policies (indexed annually). Individuals 55-64 may make additional "catch-up" contributions of up to $1,000. A married couple can make two catch-up contributions as long as both spouses are at least 55. Catch-up contributions will help individuals accumulate assets for retiree health expenses.
Contributions to HSA accounts may be made by individuals, family members and employers. Contributions made by individuals and family members are tax-deductible (for the account beneficiary) even if the account beneficiary does not itemize. Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers will be allowed to offer HSA's through cafeteria plans. The investment earnings accrue tax-free.
HSA distributions are tax free if they are used to pay qualified medical expenses. Distributions made for any other purpose are subject to income tax and a 20% penalty. The 20% penalty is waived in the case of death or disability. The 20% penalty is also waived for distributions made by individuals age 65 and older. Upon death, HSA ownership may transfer to the spouse on a tax-free basis.
10 Essential Benefits
Healthcare reform says all health plans must include ten essential benefits. The basic benefits include:
- Outpatient Care - the kind you get without being admitted to a hospital
- Emergency Services - for issues that could lead to death or disable you if you do not treat them.
- Inpatient Care - covers room and board, tests, drugs, and care from doctors and nurses while admitted, which may include organ and tissue transplants, and hospice and respite care.
- Maternity and Newborn Care - care before and after your baby is born
- Mental Health and Substance Use Disorder Services - this includes behavioral health treatment, counseling, and psychotherapy.
- Prescription Drugs - covers retail, mail order, and specialty drugs.
- Rehabilitative and Habilitative Services - services and devices to help you recover if you are injured, or have a disability or chronic condition. This includes physical and occupational therapy, speech-language pathology, psychiatric rehabilitation, and more.
- Laboratory Services - covers lab tests, X-ray services, and pathology, and imaging and diagnostics such as MRI, CT scan, and PET scan.
- Preventive and Wellness Services - including mammograms, colonoscopies, vaccines. Covered in full if you use in-network providers for care such as routine physicals, screening, and immunizations. Disease management coordinates care for diabetes, asthma, and other conditions.
- Pediatric Services - including dental care (preventive, basic, major) and vision care (eye exam, lenses, and eyewear).