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Pinnacle e-Letter

Health Savings Accounts Offer Triple Tax Savings
By Bobby Mason, Life & Health Advisor, Miller & Loughry Insurance and Services, Inc.

The Tax Relief and Health Care Act of 2006, signed into law Dec. 20, 2006, infused Health Savings Accounts (HSAs) with new taxpayer-friendly changes designed to make the accounts more attractive.

Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on Dec. 8, 2003, and have gained in popularity since they were first introduced. The accounts are designed to help individuals save for qualified medical expenses on a tax-free basis. (See below the article for the list of qualified expenses.)

HSA funds may also be used to pay for future needs, such as:

• Health insurance or medical expenses if unemployed
• Medical expenses after retirement (before Medicare)
• Out-of-pocket expenses when covered by Medicare
• Long-term care expenses and insurance

Triple Tax Savings

The greatest advantage of HSAs is that they provide triple tax savings:

• Contributions to an HSA are 100% tax free.
• Any HSA earnings through investment are tax free.
• Monies withdrawn for qualified expenses are always tax free.

Who Qualifies for HSAs?

• Is covered under a qualified high deductible health plan (HDHP)
• Is not covered by any other health plan that is not an HDHP
• Is not enrolled for benefits under Medicare

HSA contributions are used to pay for qualified medical expenses until the HDHP's deductible is reached. Once the deductible is reached, the HDHP begins paying the medical expenses. Any remaining money in the HSA is carried forward into future years until used.

HSA Changes for 2007

• The minimum deductible for high deductible health plans increases to $1,100 for individual coverage and $2,200 for family coverage.
• The maximum annual HSA contribution is $2,850 for an individual and $5,650 for a family. (These amounts are the maximum contribution regardless of your deductible.)
• Individuals who are 55 or older can make a catch up contribution of $800.
• A one-time, tax-free transfer from an IRA into an HSA is now allowed, though the transfer cannot be made before 2008.
• Individuals may now make a one-time, limited transfer from a health flexible spending account into an HSA.

How Do HSAs Compare with FSAs?

Unlike HSAs, FSAs (flexible spending accounts) cover qualified medical expenses no matter what your deductible. A qualified HDHP is not required for FSA participation. However, FSA funds do not roll over to the next year. You lose the money you didn't use. However, HSAs roll over year after year.

If your current health plan doesn't qualify for a HSA, talk with your insurance agent to see if you could be saving money. If you have a high-deductible health plan, Pinnacle can help you open your HSA. Go ahead and start saving money today.

Bobby may be reached at (615) 494- 9626 or bobby.mason@millerloughry.com.

HSA funds can be used to pay for the following medical, dental and vision expenses:

• Acupuncture (excluding remedies and treatments prescribed by acupuncturist)
• Alcoholism treatment
• Ambulance
• Artificial limbs/teeth
• Chiropractors
• Christian Science practitioner fees
• Contact lenses and solutions
• Co-payments
• Costs for physical or mental illness confinement
• Crutches
• Deductibles
• Dental Treatment
• Drug and medical supplies (syringes, needles, etc.)
• Eyeglasses
• Eye examination fees
• Eye Surgery (cataracts, lasik, etc.)
• Hearing devices and batteries
• Hospital services
• Insulin
• Laboratory fees
• Laser eye surgery
• Obstetrical expenses
• Oral surgery
• Orthodontic fees
• Orthopedic shoes
• Over the counter drugs and medications for medical care including antacids, allergy medicines, cold medicines and pain relievers (Aspirin, Tylenol, Advil, etc.)
• Oxygen
• Physician fees
• Prescribed medicines
• Psychiatric care
• Psychologist's fees
• Routine physicals and other non-diagnostic services or treatments
• Smoking cessation programs (includes over-the-counter patches, medications and gums)
• Surgical fees
• Wheelchair
• X-Rays

Return to the April 2007 e-Letter