Health Savings Accounts (HSA) under the PPACA (Patient Protection and Affordable Care Act of 2010) remain viable health plan alternatives to traditional health insurance. The effects of the PPACA on HSAs are as follows:
Reasons for Choosing an HSA?
HSAs consist of two components; namely, the High Deductible Health Plan (HDHP) and the Savings component, known as the HSA (Health Savings Account).
• The HDHP (High Deductible Health Plan) generally costs less than traditional health care coverage. Money saved on the insurance premium can be put into the HSA (the Health Savings Account).
• Contributions to your HSA are tax deductible. IRS guidelines in 2010 & 2011 allow max contributions up to $3,050 for individuals and $6,150 for a family plan (2 or more covered persons). If you are over 55, you can contribute an additional $1,000 to your HSA. If you have a spouse who is over 55, you must open a second account in order to take advantage of the catch up contribution. These contributions are equal to 100% of the selected Deductible of the Plan.
• After age 65, HSA funds can be used for non qualified expenses without penalty. Only income tax is assessed.
• Use the pre-tax funds in your HSA to pay for current medical expenses or expenses that your insurance may not cover including dental expenses, vision care, Medicare expenses, and long term care. See publication 502 on the IRS website for a complete list of qualified expenses.
• Save the money in your HSA for future medical expenses.
• No use it or lose it rule – the HSA funds remain in the account from year to year. Even if your HSA compatible coverage ends, you can still use the remaining funds tax free for qualified medical expenses.
• You are in control of your HSA. Funds belong to you even if you switch jobs, become unemployed, or change your medical coverage.
Impact of the New Health Care Reform Law – Are HSAs Eliminated?
No, HSA’s will not be eliminated with the new law and you can continue to use your HSA like you have until the end of 2010.
What will happen in 2011 with my HSA?
Beginning in 2011, the tax levied on non qualified HSA distributions (withdrawals taken before age 65 that are not qualified medical expenses) will increase from 10% to 20%. If you continue to use the HSA for qualified medical expenses, this penalty will not affect you. Also, HSA funds can no longer be used to purchase over the counter medication, unless they are prescribed by a health care professional.
What are the contribution limits in 2011?
The contribution limits will remain the same as 2010. If you are covered under an individual plan the maximum IRS contribution is $3050. If you are covered under a family plan, the maximum IRS contribution is $6150. If you are over 55, you can make an additional $1000 catch up contribution. If you have a spouse who is over 55 you must open a second account in order to take advantage of the catch up contribution.
Can I still use my HSA for over the counter drugs?
Yes, for the remainder of 2010. In 2011, you are no longer allowed to purchase over the counter medications, unless they are prescribed by a health care professional. This is the last year to buy over the counter medications tax free with your HSA, so this might be something to take advantage of in 2010 while it lasts.
What happens to my HSA if I am no longer eligible to contribute? (Switched to a non-qualified HSA plan, loss of employment, etc)
You can continue to use the funds in your HSA for qualified medical expenses or save it for the future even if you are no longer eligible to contribute more to your HSA.
Please feel free to contact the offices of www.LeagueFinancial.com at (800) 482-5347 if you have any questions or you need assistance on setting up or servicing an existing HSA Plan.
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