HSA Just Keeps Getting Better and Better

1996...The first Archer Medical Savings Accounts (MSA's) were born, available only  to Small Business Owners and their employees, but premiums and HSA cash account contributions were not fully income tax deductible....still beating the daylights out of Florida's small employer guaranteed issue group health insurance plans.

Jumping forward to December 8, 2003, President Bush signed a Medical Reform Bill, renaming  MSA's, "Health Savings Accounts" (HSA's), and opening them up to the majority of  U.S. taxpayers, increasing the amounts HSA owners could deposit into their accounts, and deeming such 100% income tax free...including interest earnings in HSA accounts.*( Business owners, may also write off 100% of the accompanying qualified HSA Health Insurance Policy premiums.)

On January 1, 2007, HSA rules were expanded further to make such health insurance plans even more attractive**. Prior to 2007, an HSA owner could deposit into his/her HSA Cash Account only a pro-rata amount equal to the lesser of his/her annual deductible up to a stated maximum. Had you estabilished an HSA health insurance plan in December 2006, the law allowed you to deposit only one-twelth of that year's allowable contribution into your HSA cash account, owing to the pro-rata deposit requirement then in effect. However, now you can deposit up to the full  $5,950, Family/ $3,000, Single, into your HSA cash account immediately, making it possible for you to earn interest on a much larger lump sum this year and in the future.

Are you age 55 or over? If so you can add an extra $1,000 to your HSA cash account now, and again each year thereafter.

New law provides for a one time trustee to trustee roll over from an Individual Retirement Account (IRA) into an HSA. There are also provisions for roll overs from FSA's and HRA's, into HSA's. See IRS Notice 2007-22, for specific steps to be followed, and talk to your CPA, before taking a decision about these alphabet soup options.

HSA Insurance Policies Minimum Annual Deductibles, Maximum Out-of-Pocket payments, and Maximum HSA Contribution limits are indexed to annual cost of living adjustment factors. 2010 minimum deductibles are, $1,200, Single/ $2,400, Family. Maximum 2010 HSA contributions are, $3,050, Single/ $6,150, Family.

If you are a self employed contractor, or owner/stockholder of a small business, you may profit from HSA ownership for yourself and family. If you already cover yourself and several employees with  traditional group health insurance, consider converting to a "dual option" plan, offering HSA as an alternative. You can also consider setting up a separate HSA plan for yourself, while continuing traditional group health insurance for your employees.

For more information about Health Savings Account insurance plans, speak to a qualified health insurance broker, and to your CPA. Remember, the devil is in the details.

*  As long as HSA cash account funds are used to pay for qualified medical expenses, they are not considered ordinary income, and are thus income tax free. See IRS Publication 502 for full treatment of Qualified Medical Expenses at, www.irs.gov. 

** HR6111, The Tax Relief and Health Care Act of 2006