Q & A on Health Savings Account (HSA)

General Information
Health Savings Accounts (HSAs) were signed by the President on December 8, 2003. Our preferred provider, Affordable Health, a national leader in Medical Savings Accounts (MSAs). Now At the forefront of the HSA legislation, Affordable Health fully supports Health Savings Accounts. 

Q. What is a Health Savings Account?
A. An HSA works like an IRA, except money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Q. Who can qualify?
A. Anyone with a qualified high deductible insurance plan is eligible for a tax-deductible HSA.

Q. Who can contribute to an HSA?
A. Individuals, employers and their employees. The accounts belong to the insured individual and are permanent and portable.

Q. How much can be contributed to the HSA in 2004?
A. Annual contribution limits for 2004 are capped at either the high deductible or $2,600 for individual and $5,150 for family - whichever amount is less.

• The annual maximum HSA contribution will change each January 1st based on the Consumer Price Index.
• There are no maximum limits on the account accumulation.
• The legislation provides for an additional contribution (and tax deduction) for those who turn age 55 before the end of the tax year. The additional contribution amount is $500 for 2004 and increases $100 each year until 2009.
  

Q. What can HSA funds be used for?
A. The funds belong to the individual or employee. Funds can be withdrawn for qualified medical expenses, tax-free.  At age 65, funds can be withdrawn for any reason with standard income tax and a 10% penalty.

Funds used to pay for the following are tax-free and penalty-free:

• Qualified medical expenses as defined under Section 213 of the IRS Code.
• COBRA insurance.
• Qualified long-term care insurance and expenses.
• Health insurance premiums for individuals receiving unemployment compensation.
• Medicare and retiree health insurance premiums, but not Medicare Supplement premiums.
  

Q. What is a high deductible insurance plan?
A. For 2004, a high deductible insurance plan is defined as a health plan with a minimum deductible of $1000 for self-only coverage and $2,000 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $5,000 for self-only coverage and no more than $10,000 for family.

Affordable Health and its affiliates are not engaged in rendering tax, investment or legal advice.  Federal and state regulations are subject to change.  If tax, investment or legal advice is required, seek the services of a licensed professional.  Insurance products are underwritten and issued by Cheap Insurance Company.