HEALTH SAVINGS ACCOUNTS ALLOW YOU TO CREATE A TAX-FREE SAVINGS ACCOUNT
THAT CAN BE USED TO PAY FOR MEDICAL EXPENSES NOT COVERED BY YOUR HEALTH
INSURANCE PLAN.
IT
MAY ALSO BE USED TO PAY FOR ALTERNATIVE MEDICINE AND NATURAL THERAPIES,
INCLUDING VITAMINS, HOMEOPATHIC & HERBAL REMEDIES, MASSAGE &
BODYWORK, AND MUCH MORE.
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As of January 1, 2004, millions of Americans, under age 65, have access
to Health Savings Accounts (HSAs) that can revolutionize health care in
America. An HSA is a tax-free savings account that works like an IRA,
except that the money is intended to be used for qualified health care
costs. Most rules and procedures that apply to IRAs also apply to HSAs.
These
accounts were designed to help correct a major flaw in tax law, which
has distorted our entire health care system. In the past, tax laws
lavishly subsidized third-party insurance and severely penalized
individual self-insurance. This new law, part of the recently enacted
Medicare prescription drug bill, gives deposits to HSAs the same tax
advantages formerly granted only to health insurance premiums.
When
combined with individually owned insurance, HSA deposits will be a
deductible expense, even for income tax filers who do not itemize.
HSAs will be the most flexible, consumer-friendly accounts yet devised. Here's how they work:
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You would purchase an HSA compatible health insurance policy. The
policy that accompanies an HSA must have an overall deductible of at
least $1,000 for an individual or $2,000 for a family. Individuals and
employers can then make deposits each year equal to their health
insurance deductible. Such deposits can not exceed the amount of the
health insurance deductible, and typically cannot exceed $2,600 for
individuals and $5,150 for families.
The
account balances can, however, earn interest or be invested in stocks
or mutual funds, and they will grow tax-free. HSA balances belong to
the individual account holders and remain theirs if they switch jobs,
become unemployed or retire. The funds can be used to pay medical
expenses not covered by insurance, insurance premiums while unemployed
and health expenses during retirement.
When you have medical
expenses, you will spend first from your HSA. If you exhaust your HSA
funds before reaching your insurance plan deductible, you would then
pay out-of-pocket until reaching your deductible. Once you reach your
deductible, your health insurance plan would pay all remaining costs
(subject to the policy).
Seventy-three percent of the population
spend $500 or less on medical expenses each year. Most people will not
spend all of their HSA funds in a year. What is not spent is yours to
keep and earn interest.
Self-employed workers who take advantage
of this may get an even better break: They can set it up in their
company and deduct it as a business expense, offsetting the double
Social Security and Medicare taxes that self-employed workers pay.
Alternative
Health Insurance Services is pleased to be able to offer these programs
to our clients. Please contact our office for additional information.
What qualifying medical expenses may be covered by the HSA?
A
Health Savings Account may cover expenses you paid that year for
medical and dental care for yourself, your spouse, and your dependents
covered by the qualified health insurance plan. Only expenses incurred
while the HSA-qualified health insurance plan was in force may be
included as a tax-free withdrawal.
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The HSA plan may include expenses paid for the prevention or
alleviation of a physical or mental defect or illness. Medical care
expenses include payments for the diagnosis, cure, mitigation,
treatment, or prevention of disease, or treatment affecting any
structure or function of the body. Drugs are covered. Medical expenses
include fees paid to doctors, dentists, surgeons, chiropractors,
psychiatrists, psychologists, and Christian Science practitioners. Also
included are payments for hospital services, qualified long-term care
services, nursing services, and laboratory fees.
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Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction are also covered medical expenses. You may include amounts you paid for participating in a smoking-cessation program and for drugs prescribed to alleviate nicotine withdrawal. However, you may not include amounts paid for nicotine gum and nicotine patches, which do not require a prescription. You may deduct the cost of participating in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician. You may not include the cost of purchasing diet food items.
In addition, you may include expenses for admission and transportation to a medical conference relating to the chronic disease of either yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not include the costs for meals and lodging while attending the medical conference.
The cost of items such as false teeth, prescription eyeglasses or contact lenses, laser eye surgery, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf are eligible medical expenses.
You may not include funeral or burial expenses, health club dues, over-the-counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.
Transportation costs primarily for and essential to medical care qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be included. If you use your car for medical transportation, you can include actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate of 12 cents a mile. With either method you may include tolls and parking fees.
You may include in medical expenses the incidental cost of meals and lodging charged by the hospital or similar institution if your main reason for being there is to receive medical care.
Vitamins or nutritional supplements do not count as qualified medical expenses unless they're recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician.
Massage is a qualified expense if a physician or chiropractor recommends it, but not if someone just decides to seek it on their own.
Yoga or mind-body programs may count as qualified expenses when an authorized health care provider recommends them, but not when a person self-refers.
For more information, see IRS Publication 502.
None of the above information is intended to be legal or tax advice. You should consult with your own accounting or legal consultants to determine the extent you might benefit from owning an HSA.
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