Health Savings Accounts
Health savings accounts began in 2004. This is important legislation that offers taxpayers an opportunity to pay for their medical expenses with pre taxed dollars. First you must have a high deductible health plan (HDHP) in force. The minimum of $1,000 deductible (individual) and $2,000 (two party or more) is required. Family deductibles are aggregate, all expenses apply to one deductible. The premium savings is generally considerable over the traditional health plan that offers first dollar benefits. The premium savings is used to pay for medical expenses by contributions and distributions into and from your Health Savings Account.

When you open a Health Saving Account your contributions are tax free and can be up to the full amount of your deductible. Distributions are tax free as well providing they are for eligible medical expenses. Eligible expenses include dental, vision, psychological, acupuncture as well as medical expenses. Employees who have HDHP's at work can contribute direct from payroll and receive tax savings. Employer contributions are also eligible for tax savings thru lower FICA and workers compensation costs.

From The Office Of Public Affairs
March 30, 2004 Treasury Issues Additional Guidance on Health Savings Accounts (HSA's)

Today the Treasury Department and the IRS issued guidance on Health Savings Accounts. The guidance clarifies the types of preventive care that can be provided under a high deductible health plan (HDHP) and the interaction between an HDHP and other prescription drug benefits. In addition, guidance is being issued to provide transitional relief for the prescription coverage interaction as well as allowing HSAs to reimburse medical expenses incurred after the establishment of a HDHP (rather than the establishment of the HSA).

"HSAs are an historic change in the way we look at health care," stated Secretary Snow. "We want to make it easy for those designing HSAs to comply with the rules and help consumers understand how HSAs can help them meet their health care needs," stated Acting Assistant Secretary Gregory Jenner. "The industry asked for more specific guidance on what is allowed as preventive care under a high deductible health plan and for clarification of the allowable interaction between the HDHP and prescription drug benefits. Today we are delivering that guidance and hope that those providing high deductible health plans and those marketing HSAs will be able to make HSAs available to all consumers as quickly as possible."

PREVENTIVE CARE
HSAs can only be established by eligible individuals, who must have coverage by a high deductible health plan (HDHP).
Generally, an HDHP cannot provide benefits before the deductible is satisfied, but there is an exception for benefits for preventive care. The guidance issue March 30th, 2004 provides a safe harbor list of benefits that can be provided by an HDHP, generally clarifying that traditional preventive care benefits such as annual physicals, immunizations and screening services are preventive care for purposes of HSAs, as well as routine prenatal and well child care, tobacco cessation programs and obesity weight-loss programs. The guidance also clarifies that preventive care generally does not include treatment of existing conditions. Comments are requested regarding whether other benefits provided be employee assistance programs, mental health programs, or wellness programs. The safe harbor provides employers and plans with the flexibility in designing health benefits, allowing them to provide preventive care benefits that reduce health costs and encourage early identification of health conditions that may require medical attention.

INTERACTION OF HIGH DEDUCTIBLE HEALTH PLANS BENEFITS WITH PRESCRIPTION BENEFITS AND TRANSITIONAL RELIEF

Prior guidance noted that an eligible individual must be covered by an High Deductible Health Plan and generally no other health plan that is not an HDHP. Guidance issued today clarifies that individuals covered by a health plan that provides prescription drug benefits before the minimum annual deductible of an HDHP has been satisfied may not make contributions to an HSA. However, companion guidance also issued provides transition relief to those individuals covered by both an HDHP and by a separate health plan or rider that provides prescription drug benefits before the deductible of the HDHP is satisfied. Under the relief, such individuals continue to be eligible to contribute to health savings accounts before 2006.

MEDICAL EXPENSE TRANSITION RELIEF

Prior guidance provided that health saving accounts may only reimburse medical expenses incurred after the health savings account is established. However, many individuals eligible to establish health savings accounts have been unable to locate trustees or custodians that will be able to open HSAs at this time. Guidance issued today provides that for 2004, an HSA established by an eligible individual on or before April 15, 2005 may reimburse expenses incurred on or after the later of January 1, 2004 or the first day of the first month that the individual became an eligible individual.
The transition relief enables you to open accounts prior to April 15th each year for expenses incurred the prior year. You must have a high deductible health plan in force to be eligible for the tax benefits of a health savings account.