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13.3.4 Health Savings Accounts (HSA)

Health savings accounts (HSAs) are designed to assist the small business owner and the self-employed set aside tax-advantaged funds to help defray health care costs. As long as the HSA contributions are used to cover qualified medical expenses incurred by the HSA owner, the spouse, and dependents, the funds remain tax free. If the funds are used for any other purpose, however, they become taxable and subject to a 10% penalty fee.

Assets can accumulate over the years and ownership can be transferred to a spouse tax free upon the death of the HSA owner.

HSAs are based on a high-deductible contribution plan.

Individual participants must be under age 65 and must be enrolled in a qualified health plan with a high deductible.

For an individual, a qualified high-deductible health plan is one with a minimum deductible of $1,150 (2009; $1,200 for 2010) and a $5,800 (2009; $5,950 for 2010) cap on out-of-pocket expenses (limits indexed annually).

For a family, a qualified health plan is one with a minimum deductible of $2,300 (2009; $2,400 for 2010) and a $11,600 (2009; $11,900 for 2010) cap on out-of pocket expenses (limits indexed annually).

Annual contributions of up to 100% of an individual's health plan deductible can be made to an HSA. For 2009, the maximum annual contribution is $3,000 for self-only policies and $5,800 for family policies (again, indexed annually), provided the insured has a deductible at least that high. Individuals age 55 to 65 can make an additional catch-up contribution. Individuals with HSAs who are age 55 and older may make additional annual contributions of $1,000 in 2009 and thereafter.

Earnings grow tax free and account beneficiaries can make tax-free withdrawals to cover current and future qualified healthcare costs. Non-qualified withdrawals are subject to income taxes and a 10% penalty tax. HSAs are fully portable and assets can accumulate over the years. Upon death, HSA ownership may be transferred to a spouse tax free.

Helpful Hint

Qualified health care expenses include the following services and products.

(*Qualified health care expenses are listed on page 361, Florida study manual.)

1
Section 13.3 Review

There are three types of deductibles under Major Medical Expense plans.

A(n) is a stated amount that the insured must pay before policy benefits become payable. A(n) is a fixed dollar amount per loss and applies in the transitional area between basic coverage and major medical expense coverage. A(n) works in conjunction with supplementary policies where whatever amount the basic medical expense covers is applied to the deductible.


Word bank: Corridor deductible, Flat deductible, Integrated deductible

A(n) Flat deductible is a stated amount that the insured must pay before policy benefits become payable. A(n) Corridor deductible is a fixed dollar amount per loss and applies in the transitional area between basic coverage and major medical expense coverage. A(n) Integrated deductible works in conjunction with supplementary policies where whatever amount the basic medical expense covers is applied to the deductible.

Lesson 13.3.1Check your answer

2

Preexisting condition clauses protect insurers from:

a) adverse selection.
b) inflation.
c) rising health care costs.
d) prejudice.
CORRECTTRY AGAIN (Lesson 13.3.3)
Check your answer

3

For an individual, a qualified high-deductible health plan is one with a minimum deductible of ______.

a) $1,150
b) $1,200
c) $2,300
d) $2,400
CORRECTTRY AGAIN (Lesson 13.3.4)
Check your answer

4

For 2009, the maximum annual contribution is _______ for self-only policies.

a) $1,000
b) $2,000
c) $3,000
d) $4,000
CORRECTTRY AGAIN (Lesson 13.3.4)
Check your answer

5

Nonqualified HSA withdrawals are subject to income taxes and a 10% penalty tax.

a) True
b) False
CORRECTTRY AGAIN (Lesson 13.3.4)
Check your answer