To Your Health
February, 2007 (Vol. 01, Issue 02)
Another advantage of HSAs is that they give you control over your health care. You choose which providers you see and what health care you use, as long as HSA funds are used only for "qualified expenses." (A qualified medical expense is any health care cost paid on behalf of the individual or his or her spouse or dependents for medical care, as defined in the Internal Revenue Code - IRC 213(d).)
Because you're spending your own money, you are no longer at the mercy of managed care review boards that may or may not decide to approve your choice of care.
Who Can Have an HSA Account?
In order to make deposits into an HSA, you must own an HSA-qualified health insurance policy. A qualified policy includes the following characteristics:
- The policy must have a minimum deductible of $1,100 ($2,200 minimum for families).
- There are no first-dollar benefits. Co-payments for office visits and prescriptions prior to satisfaction of the deductible are not allowed.
- The policy must have maximum out-of-pocket liability of no more than $5,500 ($11,000 for families).
- Preventive benefits are allowed without deductible.
- The policy must be in effect at the time of any qualified contribution. A policy does not need to be in effect in order to make a withdrawal from the account.
In addition to owning a qualified policy, you cannot be covered by another health plan that is not a high-deductible health plan (for example, you cannot be covered through your spouse's employer coverage). If you are eligible for Medicare, you do not qualify to have an HSA.
How Much Money Can You Contribute?
Contributions to an HSA by you and your employer are limited to $2,850 if you are single and $5,650 if you are married. (This amount increases annually based on the Consumer Price Index.) These limits reflect an important change for 2007. Previously, you were limited to your deductible or the maximum contribution - whichever was less. Proponents continue to fight to have the maximum contribution equal your annual maximum out-of-pocket cost.
Individuals over age 55 can make "catch-up" contributions (limited to $800 annually, rising by $100 increments until reaching $1,000 for 2009 and later years). Rollovers from existing MSAs are allowed and do not count toward the annual contribution. The 2007 changes will allow rollovers from FSAs and HRAs for a limited time. Even IRAs can be rolled over to the HSA on a one-time basis.
Another very unpopular restriction was lifted in the new tax bill for 2007. Previously, your contribution was prorated for the amount of time you held the qualified high-deductible health plan. The revision now allows you to make your complete annual contribution, regardless of the length of time you held the high-deductible health plan. Remember, you must hold a high-deductible health plan in order to make a deposit into your HSA.