Who can open an HSA?

The Medicare Act of 2003 included a section allowing "eligible individuals" to establish H As beginning January 1, 2004. An "eligible individual" means, with respect to any month, any individual who must 1) be covered by a high-deductible health plan on the first day of such month; 2) not be covered by any medical p an that is not a high-deductible health plan (dental and vision plans are not included in this); 3) not be entitled o Medicare benefits (generally, has not yet reached age 65); and 4) not be able to be claimed as a dependent on another individual's tax return.

What constitutes a high-deductible health plan?

High-deductible health plans (are health insurance plans that have an annual deductible in 2006 of a minimum of $1,050 for individuals or $2,100 for families. Maximum out-of-pocket expenses (including deductibles and any co-payments, but not including premiums) must be at least $5,250 for individuals and $10,500 for families. These amounts are indexed to inflation.

How does the plan's deductible work?

A deductible is a flat dollar amount you must pay each calendar year before your health pl n begins paying for covered benefits. Your deductible accumulation returns to $0 on January 1 of each year. I your high-deductible health plan cover a family (two or more people), and then the entire family deductible (aggregate deductible) must be satisfied before the plan begins paying benefits for any member.

Are roll over contributions to HSAs permitted?

Roll over contributions may be made from Archer Medical Savings Accounts (MSAs) and other HSAs only.
Roll overs are not subject to the annual contribution limits.

How are HSAs funded?

HSAs are funded through a trust or custodial account. Assets must be held by a bank, insurance company, or similar approvedfinancial institution.

How do employees benefit from having an HSA option?

HSAs provide employees with multiple benefits and are generally an improvement over earlier savings accounts used for medical expenses. Specifically, HSAs are:
> Tax-advantaged: Neither contributions, earnings, or withdrawals (for qualified medical expenses) are taxed.
> Flexibility: Money accumulates and remains with the employee (is non-forfeitable); can be used for non-medical expenses (subject to ordinary tax, plus a 10 percent penalty if the employee is under age 65).
> Portable: Accounts move with the employee when they change employers.
> Savings mechanism for future health needs: Unused contributions accumulate and can be "banked" for future medical expenses. Funds can be invested for higher returns.
> Contributions can come from multiple sources: Employer, employee, or family members can all contribute to HSAs.
> Tax-free distributions are also allowed for health care needs not covered by the beneficiary' s insurance policy, COBRA, health insurance for the unemployed and long-term care insurance.

How do employers benefit from offering HSAs?

HSAs make high-deductible consumer-driven plans more attractive to employees compared with earlier MSAs or
HRAs, increasing the likelihood that these plans, if optional, will be selected.
With the cost of care rising, employers are running out of options. Many are turning to consumer-driven health plans, which are aimed at getting individuals more actively involved in their own medical care: and encouraging them to make decisions that take into account the cost of services. Because consumer-driven health plans typically feature a high-deductible plan design with a lower premium, cost of coverage to the employer ends to be lower.