Use of Health Savings Accounts up 35 Percent; Critics See Them as Tax Shelter

The number of Americans with insurance plans tied to health savings accounts has passed the 6 million mark, according to America's Health Insurance Plans. HSAs are tax-favored, individually owned savings accounts that can be used to pay for medical expenses in conjunction with a high-deductible insurance plan. About 6.1 million Americans were covered through HSA plans in January 2008, up 35 percent over the same period a year earlier, according to AHIP, a trade association representing insurers. The plans have been in existence since January 2004.

About 30 percent of individuals covered by HSA plans worked for small businesses, 45 percent worked for large employers, and 25 percent bought insurance in the individual market. The small-group market is the fastest-growing segment for HSAs. The AHIP survey found that HSAs are helping more Americans afford health insurance. HSA plans accounted for 31 percent of new coverage in the small-group market over the past year, and 27 percent of new coverage in the individual market.

The average deductible for the best-selling HSA plans in the small-group market was $2,244 for single coverage and $4,356 for family coverage, according to AHIP.

Average annual out-of-pocket limits were $3,462 for single coverage and $6,690 for family coverage.

Premiums averaged $3,189 for single coverage and $8,125 for family coverage.

"The increasing popularity of HSAs is a result of managed care's failure," said John Goodman, president of the National Center for Policy Analysis, a Dallas-based public policy research organization. "The best way to control health care costs is to put patients in control of more of their health care dollars."

Critics of HSAs, however, pointed to another study. The Government Accountability Office found that taxpayers with HSAs in 2005 were, on average, more than twice as wealthy as other taxpayers. Contributions to HSAs were more than twice as high as withdrawals. "HSAs clearly are attractive to higher-income people who are looking for tax shelters," said Rep. Henry Waxman (D-Calif.). "But they aren't the answer for providing adequate health insurance coverage for the average American. This report provides further evidence that we need to re-examine whether this is the right way to use the government's resources to address our health care needs."

The House recently passed legislation that would require HSA trustees to substantiate that withdrawals from the accounts were used for allowable medical expenses. Republicans who opposed this provision said it was designed to undermine HSAs by adding unnecessary administrative burdens. "Democrats should stop trying to dismantle this coverage option," said Rep. Charles Boustany (R-La.). "These accounts help cover the uninsured and lower health costs with preventive care, lower-cost medicines and fewer visits to emergency rooms."

The HSA studies are available at www.ahipresearch.org and www.gao.gov.

HSA’s – A Year End Tax Planners Dream

Tax Savings From My Health Plan You Say?

If you have just completed your 3rd quarter review and discovered that Uncle Sam will be taking a bigger bite out of your profits, the cure for your ills may be found in your health plan. HSA’s or Health Savings Accounts were established by Congress in 2003 when they passed the Medicare Prescription Drug Improvement and Modernization Act. When first implemented, it came with a myriad of complicated rules and conditions.

In 2006, President Bush signed the Health Opportunity Patient Empowerment Act which simplified the rules for employees and employers wanting to put an end to ever rising health insurance premiums. Simply put, Health Savings Accounts are like Healthcare IRA’s. Money deposited in your HSA grows tax free, and the funds placed in the account either by you, your employer, or both, uses pre-tax dollars, money that is free from payroll and income taxes.

What Dream?

Unlike an IRA or 401k account, money withdrawn from your Health Savings Account must be used for a wide range of allowable medical, dental, and health related expenses. If not, you are subject to the same 10% penalty and taxes that a 401k plan has. However, money spent for allowable expenses is never subject to taxes either going in or coming out.

The amount you are able to shelter depends on whether you are an individual or have a family of 2 or more people covered by a qualified (HDHP) High Deductible Health Plan. A single person could contribute $2,850 tax free in 2007 and $2,900 in 2008. A married couple or family can contribute $5,650 and $5,800. By taking advantage of an IRS sanctioned Health Savings Account between November 2007, and January of the next year, an individual can shelter $5,750. For married couples or families, their maximum grows to $11,450 in the next 3 months.

Pinch me!!!

Follow this example, John is single. He contributes $2,850 in a Health Savings Account prior to December 31st 2007. In January, John deposits another $2,900. In February, John goes for Lasik eye surgery to repair his vision back to 20-20. The cost is $5,000 which John has deducted from his health savings account. In a period of less than 4 months, John was able to deposit $5,750 tax free, spend most of it, without paying a dime in taxes.

Charles, age 57 and Susan 55, are married, kids are grown, and Charles is covered under a qualified High Deductible Health Plan (HDHP) offered by his employer. His employer is contributing $100 a month for single and $150 for all other employees who applied for the lower cost health plan. Charles plans to contribute the maximum allowed. Because Charles and his wife are over 55, the law allows for “catch-up” contributions of $800 each in 2007 and $900 each. Their catch–up contributions add up to an extra $3,400 or $14,850 between 2007 and 2008.

All that you need is coverage under a qualified High Deductible Health Plan, which by law can be a policy with deductibles as low as $1,100 for individuals and $2,200 for two or more people. Open your Health Savings Account at a bank or other financial institution, and its lights out for the tax man. Pleasant Dreams.

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Bruce Silver is the founder of Employers Rx LLC, an employee management consulting firm specializing in HR Outsourcing and Professional Employer Organizations.

http://employers-Rx.com