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As consumers scramble to determine what direction Obamacare will take after the election of Donald Trump, one thing is evident, health savings accounts (HSAs) will play a prominent role in healthcare reform. To help provide information on HSAs, we are republishing a previously posted Q&A from August 2015, which helps explain what an HSA is, how it works and other frequently asked questions. While some of the information below references Obamacare, the facts about HSAs remain relevant.
Although HSAs were established under federal law in 2003 and originated in the early 1980s, they remain a relatively new and somewhat confusing concept to Americans. Reports show that 86 percent of consumers say they don’t understand HSAs.1 Nonetheless, HSAs have become increasingly popular among individuals, families and employers, and more than 15.5 million Americans have an HSA health plan.2
When combined with a qualified high deductible health insurance plan, HSAs allow consumers to set aside tax-free dollars for future medical expenses. Funds can be used on qualified medical expenses whenever the accountholder chooses—there’s no use it or lose it.
Regardless of what happens under a Trump administration, health savings accounts are as important as ever. To help consumers better understand this benefit product, Health eDeals reached out to Michael Berry, President and CEO of American Health Value, to answer some of the frequently asked questions about HSAs.
Health eDeals: What are the benefits of having a health savings account for consumers with job-based health insurance coverage and those who buy their own?
Michael Berry: The advantages for an employee and individual are similar and include the following:
These tax benefits lower overall healthcare costs. For example, if you fund $2,000 into your HSA – you lower your federal taxable income by $2,000. In essence, that tax savings is lowering your overall healthcare costs today and into the future. Additionally, if you are receiving a tax deferred interest return on your HSA funds, that amount can be likened to further lowering your healthcare costs. If you have a state income tax, it lowers state taxable income as well.
Maximum Annual 2015 Contribution Limits:
Family : $6,650
At age 55 and over, an additional $1,000 is allowed per year referred to as the ‘catch-up contribution’
HED: Do HSAs earn interest? Can HSA funds be invested?
MB: Yes, with the option to invest for potential higher returns. Consumers who wish to invest their HSA funds should discuss such decisions with a financial, legal or tax professional. With American Health Value, over 6,000 investment options are available.
HED: Can you please talk about using HSAs in retirement/after you turn 65? If you have Medicare, can you continue making contributions to your HSA?
MB: Consumers may continue to use their HSA tax-free for qualified medical expenses, regardless of age. They may take out taxable funds for non-qualified expenses starting at age 65.
Those with Medicare can use their HSA funds to pay Medicare premiums; however, this does not apply to Medicare supplement insurance. Medicare enrollment, regardless of part, disqualifies a person for continued deposits but does not disqualify them from using the funds tax-free for qualified expenses, which is often misunderstood.
HED: How does offering an HSA to employees benefit an employer?
MB: Employers have multiple advantages to offering an HSA to their employees:
HED: What are some key things consumers need to know about shopping for a health insurance plan and pairing it with an HSA?
MB: For the average consumer, insurance is complicated and confusing. Most consumers would not understand if they are eligible or not for an HSA. National surveys conclude the biggest challenge with Consumer Driven Health Care including HSAs, is lack of education and understanding.3,4
Those shopping for HSA insurance options are best served with a team of experts for both the insurance and HSA portion of the HDHP/HSA option. This team will help consumers navigate the marketplace to find the best option for their specific needs and goals. Furthermore, they know the rules and regulations for HSAs, such as:
When working with an HSA expert, consumers can also expect customer service for the life of the HSA and gain access to a live personal account specialist versus call centers, phone trees, automated voice/key systems, etc.
HED: What are some common misconceptions about HSAs?
MB: National surveys reveal multitudes of misconceptions or inaccuracies concerning the HSA, including the following:
HED: Does everyone in a family need their own HSA? Who can use the account?
MB: You have options to best maximize the HSA regulations, such as:
HED: Why do Health Savings Accounts remain relevant in the age of Obamacare?
MB: With higher deductible plans offering the most affordable premiums, it makes practical sense to add an HSA to a high-deductible health insurance plan and receive the additional benefits it provides.
An HSA lowers overall healthcare costs for an account holder. HSA-qualified health plans are the only insurance option that, coupled with an HSA, lowers overall healthcare costs when medical costs are paid tax-free from an HSA. A simple way to understand this cost reduction is:
Whatever your tax rate is (15 percent, 20 percent, etc.), that is your reduction in medical expenses as a direct result of the HSA.
In addition, HSA health plans vary in plan design to best suit the individual needs of the consumer, i.e., 100 percent coverage after deductible, or 80/20, 70/30 – with an annual maximum out-of-pocket expense.
Using an HSA Health Plan gives more flexibility to the consumer for financial management and long-term planning.
HED: How do HSAs work with ACA-compatible health insurance plans?
MB: HSA-compatible plans have made it into the ACA and are typically found in the Bronze and Silver levels. The HSA rules are compatible within the federal and state exchanges, as well as the private insurance marketplace. As long as a plan is an HSA-qualified plan, it works the same as all other plans.
HED: If I buy health insurance coverage on or away from a state/federal exchange, as opposed to receiving employer-based health insurance, how do I enroll in an HSA?
MB: You can work with a company such as American Health Value, which allows you to enroll online, call toll-free and speak with an HSA Specialist to enroll over the phone (no phone trees—not a call center), or fill out a paper application, which can be downloaded from americanhealthvalue.com and then mailed, faxed or scanned/emailed.
To fully cover the HSA rules and regulations, as well as how to maximize all their benefits to each unique consumer, cannot and should not be one statement that is accurate for all. Although there are specifics that govern, there are interpretations that can change from one individual to another. For example, “I take heart medicine to prevent heart attack or stroke. Is that considered preventive and it can be paid from my HSA before my deductible is met?
Having a team of experts is the best way to navigate today’s insurance environment.
Work with an expert
To learn more about health insurance plan options, visit healthedeals.com or call 888-839-7679 to speak with an IHC representative.
For help selecting and enrolling in an HSA, call American Health Value at 800-914-3248. Learn more at americanhealthvalue.com.
1Mayer, Kathryn. “Consumers Clueless About HSAs.” BenefitsPro. Feb. 21, 2014. http://www.benefitspro.com/2014/02/21/consumers-clueless-about-hsas
2AHIP. “Health Savings Accounts and Consumer-Directed Plans.” http://www.ahip.org/Issues/Health-Savings-Accounts-and-Consumer-Directed-Plans.aspx
3Livingston, Shelby. “Consumer-Driven Health Plans Confuse Their Consumers.” Business Insurance. July 29, 2015. http://www.businessinsurance.com/article/20150729/NEWS03/150729816
4Acclaris Consumer Education Survey Report. “Industry Acknowledges Consumer Confusion About Health Savings and Reimbursement Accounts.” July 29, 2015. https://www.acclaris.com/category/releases/
This document is for general informational purposes only. While we have attempted to provide current and accurate information, this information is provided "as is" and we make no representations or warranties regarding its accuracy or completeness. The information provided should not be construed as legal or tax advice or as a recommendation of any kind. External users should seek professional advice from their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.
About The IHC Group
Independence Holding Company (NYSE: IHC) is a holding company that is principally engaged in underwriting, administering and/or distributing group and individual disability, specialty and supplemental health, pet, and life insurance through its subsidiaries since 1980. The IHC Group owns three insurance companies (Standard Security Life Insurance Company of New York, Madison National Life Insurance Company, Inc. and Independence American Insurance Company) and IHC Specialty Benefits, Inc., which is a technology-driven insurance sales and marketing company that creates value for insurance producers, carriers and consumers (both individuals and small businesses) through a suite of proprietary tools and products (including ACA plans and small group medical stop-loss). All products are placed with highly rated carriers.
IHC Specialty Benefits, Inc.
IHC Specialty Benefits, Inc., doing business as Health eDeals Insurance Solutions is a full-service marketing and distribution company that focuses on small employer, individual and consumer products. Health eDeals markets products via general agents online, telebrokerage, advisor centers, private label and directly to consumers. For more information about Health eDeals visit http://www.HealtheDeals.com.