With all the health care reform discussions, debates, proposals, and counter-proposals making the rounds, it is hard to understand what is actually going on with health insurance, both generally and specifically. Not to mention the endless arguments about Medicare. And the changes are happening over a longish period of time, with many consequent revisions not scheduled to take place until 2014. This only adds to the confusion.
Health insurance carriers and agents alike are trying to navigate all this, and poor advice and misinformation is everywhere. And that’s the situation we will do our best to remedy here, with some Right Policy Health Insurance Cliff Notes.
You have been hearing about HSA‘s for a while now. An HSA, a health savings account, is a tax-exempt custodial account or trust that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses that you incur – this is the official IRS definition, by the way. What does this mean?
An HSA is a tax-sheltered savings account, sort of like an IRA, but for medical expenses. This account works together with a ‘high-deductible’ health insurance policy that will provide you with comprehensive major medical health insurance coverage at the lowest net cost. The money you deposit into your HSA is 100% tax-deductible. While your ‘high deductible’ health insurance plan pays the big bills, meaning covered expenses in excess of the deductible, the tax-free dollars in your HSA account pays the small bills.
You can also use your HSA funds to pay for medical expenses not covered under your health policy – maybe for dental expenses, vision expenses or alternative treatments. What you don’t spend from that account every year is yours to keep and accumulate.
You do not need permission from the IRS to set up this HSA account, but you will need a qualified trustee. The trustee could be a bank, an insurance company or anyone already approved by the IRS to be a trustee of IRA arrangements or Archer MSA’s. The HSA can be established through a trustee that is different from your health plan provider.
The basic requirements to qualify for an HSA are simple:
- You are not enrolled in Medicare
- You are not claimed as a dependent on someone else’s tax return.
- You have no other health coverage except what is permitted under other health coverage (covered later).
- You are covered under a high deductible health plan (HDHP) on the first day of the month.
- A higher annual deductible than typical health plans, and
- A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Out-of-pocket expenses include copayments and other amounts, but do not include premiums.
- Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine visits, such as annual physicals.
- Routine prenatal and well-child care.
- Child and adult immunizations.
- Tobacco cessation programs.
- Obesity weight-loss programs.
- Screening services, including for the following: