 Tax-Advantage Accounts for Health Care
Tax-Advantage Accounts for Health Care
In an effort to control the sky rocketing health insurance premiums, U.S. Congress recently passed the Medicare Bill, which was signed into law by President.
In addition to the “Senior Issues”, the law also allows Tax-Advantage Accounts for Health Care Expenses. These new accounts are now known as Health Savings Accounts or H.S.A. and Health Reimbursement Accounts or H.R.A.
H.S.A. and H.R.A. are medical plans with large deductibles. The deductibles are placed into a savings account by an employee or employer and are tax deductible. If these accounts are not used for qualified medical expenses they may be rolled over to the next year. Withdrawals will be tax deductible as long as they are used for qualified medical expenses.
Employers of all sizes may start to move to an H.S.A. or H.R.A. as a further cost saving measure in an effort to control the skyrocketing health insurance premiums. If there is an employee-employer relationship involved, a companies’ contributions are excludable from income and any employee contributions are tax deductible.
The H.S.A. requires an up front contribution of money for all employees whether they are using the health plan services or not. A Health Reimbursement Account (HRA) does not require this pre-funding arrangement. In order to qualify for an HRA or an H.S.A., an individual or small group will have to buy a qualified high deductible health insurance plan of $1000 or more ($2000 or more for the family).
There also will be a maximum out of pocket limit, which will be indexed annually, of $5,000 for individuals ($10,000 for a family). The annual contribution to the fund will be limited to 100% of the deductible up to a maximum $2,600 for an individual ($5,150 for a family). Those individuals who are 55 or older will be allowed stepped up contributions starting at $500 in 2004, increasing to $1000 annually by 2009.
These new tax advantage accounts may even encourage worker’s whose employers do not provide benefits, and who make up the majority of the uninsured to obtain coverage. A big plus for employers will be to offer the H.S.A. and H.R.A. plans in conjunction with a Section 125(d) cafeteria plan.
Anyone who is uninsured and in reasonable health may find it easier to obtain coverage in an H.S.A. or H.R.A. plan utilizing the high deductible concept. I am sure these plans will have an immediate impact on lowering health insurance premiums, thus making it more affordable and insuring more people.
Tony L. Martin has been in the insurance business for over 33 years. For over a decade, he has served as the Director of Insurance for the Arizona Business Association, Inc. He also holds a seat on the safety committee for the association. He can be reached at TL MARTIN INSURANCE AGENCY 602-276-7000.
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