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Health Savings Accounts (HSA) In Vermont
A Health Savings Account, or HSA, combines the advantages of reduced premiums -- realized through selecting a higher deductible medical plan -- with the ability for Vermont business owners and their employees to accumulate tax-deferred funds (principal, interest, dividends and capital gains) from year-to-year without penalty to pay for current and future "Eligible Medical Expenses".
Benefit Design & Strategies is the expert on HSA plans and custodial accounts in Vermont with its membership in the National Association of Alternative Benefits Consultants (NAABC) and subscription to a number of resource services alerting us to HSA changes and Treasury Department rulings related to these plans.
Eligible Vermont groups include employers of any size and self-employed individuals. To more likely satisfy the needs of their employees, many Vermont employer-groups offer two medical plans (referred to as a "dual option") with the HSA plan being one selection.
Since the HSA legislation was adopted in late 2003, Benefit Design and Strategies, LLC has successfully implemented and continue to service HSA plans with over half of our Vermont group clients, both large and small.
Benefit Design can conduct a feasibility study to determine if your company and employees might benefit from the introduction of an HSA plan using our exclusive and comprehensive methodology.
Contribution Limits for 2009
Contributions to HSA accounts from all sources are limited to the "statutory limits" established each year by the U. S. Treasury Department. The 2009 limits are $3,000.00 for persons with single coverage and $5,950.00 for those with two-person and family coverage. There is no limit, however, on the amount that can be accumulated in an HSA account over time. Accountholders age 55 and older can make an additional "catch-up" contribution in excess of the Statutory Limits of up to $1,000 for 2009. There is no longer a pro-ration of contributions to HSA accounts for health plans commencing in the middle of the year, a much criticized shortcoming of these plans prior to 2007. See also the article on 2009 HSA Contributions.
Upon attaining the age of 65, a participant can use the accumulated savings for any purpose without penalty; however, funds used for non-medical purposes MUST be added to one's taxable income in the year withdrawn.
Differences Between an HSA and Flexible Spending Account
An HSA account is often confused with the Medical Expense Reimbursement Accounts offered through a Section 125 Cafeteria or Flexible Benefit Plan. The major differences are:
1) the ability to carry over unused funds in your HSA account each year without penalty,
2) the ability of owners, partners in a partnership or stockholders of an S corporation to participate and make contributions to their personal HSA accounts, and
3) the ability to use the HSA account as another retirement savings vehicle.
Eligible Expenses Under HSA Account
HSA funds can be used to pay for or reimburse the following eligible expenses:
1. Out-of-pocket health expenses covered by the HSA-qualified medical plan;
2. Certain over-the-counter drugs, other then those used for cosmetic purposes or to promote good health (i.e. multi-vitamins, toothpaste, etc);
3. Vision exams and corrective eyewear, including contacts and solution;
4. Dental fees, dentures and braces so long as the orthodontics is not strictly for cosmetic purposes;
5. Hearing exams and hearing aids, including batteries;
6. Smoking cessation programs, but not nicotine patches;
7. Most naturopathic medical services;
8. Routine physicals, female well-care and diagnostic screening services; and
9. Premiums for long-term care (nursing home/home health) insurance, but not Medicare Supplemental policies.
2. Certain over-the-counter drugs, other then those used for cosmetic purposes or to promote good health (i.e. multi-vitamins, toothpaste, etc);
3. Vision exams and corrective eyewear, including contacts and solution;
4. Dental fees, dentures and braces so long as the orthodontics is not strictly for cosmetic purposes;
5. Hearing exams and hearing aids, including batteries;
6. Smoking cessation programs, but not nicotine patches;
7. Most naturopathic medical services;
8. Routine physicals, female well-care and diagnostic screening services; and
9. Premiums for long-term care (nursing home/home health) insurance, but not Medicare Supplemental policies.
Check out a more complete list of eligible medical expenses or go to www.irs.gov. You may download the latest edition of I.R.S. Publication 502 here.
Advantages to Employer and Employees
Benefit Design & Strategies has identified the following advantages to Vermont employers and employees of adopting an HSA medical plan:
- Savings of between 25 to 40% on health insurance premiums compared to traditional low deductible PPO and most HMO plans.
- Both employer and employee can make contributions into an employee's personal HSA bank account so long as the annual Statutory Limit is not exceeded.
- Funds in HSA accounts can be carried over to future years and are able to grow tax-deferred. Funds can also be transferred into an investment account and remain tax-sheltered.
- A special provision of the Section 125 flexible benefit (cafeteria) plan law now permits employers to amend their flex plan to enable employees to have contributions taken out in pre-tax dollars (free of both income and payroll taxes) and have these funds direct-deposited into their respective HSA accounts.
- The carry-over feature of HSA deposits provides an incentive for employees to make wise healthcare decisions, unlike a flexible spending account with the "use-it-or-lose-it" proposition at the end of the year.
- Small employers are able to offer several benefits – dental, vision, complimentary medicine and retirement – all in one simple package.
- Many HSA plans now pay for most preventative care services at 100% for adults and children, and also female well-care.
- Greater employee satisfaction with their medical plan due to expanded medical services and products (such as homeopathic services and over-the-counter medications) that can be paid for from the account.
- Employer HSA contributions deposited into employees' HSA accounts are treated as a business expense by the IRS, and thus tax exempt.
Contact Ben Bosher of Benefit Design & Strategies, LLC to see if a Health Savings Account medical plan is appropriate for your company or non-profit staff.