TDA Member Insurance Program

HSAs will be an important part of the nationwide movement towards “Consumer Driven Health Plans” that have been receiving such extensive coverage in the media lately.

Provisions for the HSAs were a major component of the Medicare bill signed into law in late 2003, and they will replace the Medical Savings Accounts (MSA) first introduced in 1997. They will allow many people to establish a vehicle to fund their future health care expenses on a tax-free basis.

Who can qualify for an HSA?

• As of January 1, 2004, everyone under age 65 is eligible to establish a HSA, provided they have a qualified High Deductible Health Plan and are not covered by another health plan.

• For a single individual the plan deductible cannot be less than $1,000, and it must have a cap of not more than $5,000 on total out of pocket expense (deductible plus coinsurance) in-network.
• The family plan must offer a deductible of not less than $2,000, and have an out-of-pocket cap of not more than $10,000 in-network. (please note: to satisfy a HDHP family deductible it is not necessary for two or more family members to satisfy individual deductibles – the traditional definition – if all family members collectively exceed the “family deductible” benefits become payable. If the plan does not define family deductible in this fashion, it is not a qualified plan).
• The deductibles will be indexed annually for inflation.

HSA Contributions:

• You can make a contribution to your HSA each year that you are eligible. For 2007, you can contribute up to $2,850* if you have Self-only coverage and $5,650* if you have Family coverage wet

New Annual Contribution Levels for HSAs:

• For 2010, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,050. 
  For family coverage, the maximum annual HSA contribution is $6,150.
  Catch up contribution for individual who are 55 or older is increased by statute to $1,000 for 2009 and all years going forward.
  Individuals who are eligible individuals on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end), regardless of the number of months the individual was an eligible individual in the year.  For individuals who are no longer eligible individuals on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.

New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:

• For 2010, the maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,950 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $11,900.

Minimum Deductible Amounts for HSA-Compatible HDHPs:

• For 2010, the minimum deductible for HDHPs increases to $1,200 for self-only coverage and $2,400 for family coverage.
• In addition, a fiscal year plan that satisfies the requirements for an HDHP on the first day of the first month of its fiscal year may apply that deductible for the entire fiscal year.

Determining Your Contribution:

• Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. If you do not have HDHP coverage for the entire year, you will not be able to make the maximum contribution. All contributions (including catch-up contributions) must be pro-rated. Your annual contribution depends on the number of months of HDHP coverage you have during the year (count only the months where you have HDHP coverage on the first day of the month). For years after 2006 a special rule allows you to contribute the maximum amount for the year as long as you have coverage for December. However, if you fail to remain covered for 2008, the extra contribution above the pro rated amount is included in income and subject to an additional 10 percent tax. Contributions can be made as late as April 15 of the following year.

Who can contribute to an HSA?

• There are three types of tax-favored contributions allowed under the guidelines: employee contributions, employer contributions, and salary reduction contributions made through a Section 125 cafeteria plan. All three forms of contributions are exempt from federal income taxes, and employer and salary reduction contributions are exempt from FICA and FUTA taxes.
• The contributions to the account by an employer are not included in the employee’s taxable income, and contributions into the account by an employee are tax deductible.
• Persons between the ages of 55 and 65 can make additional “catch up” contributions of up to $600 a year beginning in 2004 increasing annually by $100 through 2009 up to a maximum of $1,000. Married couples can both make catch-up contributions as long as they each are between the age of 55 and 65.
• For employees it is important to note that HSAs are portable.

What happens when you take funds out of an HSA?

• Distributions from the account are not taxable as long as they are used to pay qualified medical expenses; e.g., medical, dental, vision, chiropractic and long term care expenses. Any medically necessary expense as defined by the IRS is eligible.
• Paying premiums for Medicare supplement policies are specifically disqualified.
• Distributions for non-medical purposes, prior to age 65, are treated as taxable income and subject to a 10% penalty. Distributions from the account after turning age 65 for non-medical purposes are taxable as ordinary income, but otherwise without penalty.

Clearly the HSA/HDHP will have its greatest appeal to members of the Texas Dental Association who expect to have few medical expenses, want to enjoy the obvious benefits of tax-advantage savings, and minimize their cost of insurance protection. Unfortunately, not all members wanting to participate may be able to, since there will be medical underwriting required to qualify for the new High Deductible Health Plans.

If you would like to receive more information and a cost quote on how an HSA might fit you and your family, or if you’d like to explore the feasibility of making it work for the office staff, please complete the HSA Quote Request form (link at the top right of this page) and fax it to us at 1-817-569-8304. We are also available to answer your questions at 1-800-677-8644.