Contact:
Lois Whitehead, Public Relations Manager
212-719-8405
lwhithead@nysscpa.org

NEW YORK, NY, December 20, 2004 -- The New York State Society of Certified Public Accountants is pleased to offer the following questions and answers about Health Savings Accounts (HSAs):

1. How do Health Savings Accounts (HSAs) work?

Your company offers a health insurance policy with an annual deductible of at least $1,000. You put pretax dollars into an HSA each year up to the amount of the deductible but no more than $5,150 for family coverage or $2,600 for individual coverage. You withdraw the money from your HSA tax-free but it can only go for your family’s medical expenses. After the deductible and co-pays are met, insurance still typically covers 80% of health costs.

HSAs are required to have maximum out-of-pock spending limits, $5,000 for individual, $10,000 for families. That’s when your company’s insurance kicks in again at 100% coverage. Your company can match part or all of your HSA contributions if it wishes, just as it does with 401(k)s.

You can invest your HSA in stock, bonds or mutual funds. Unused money remains in your account at the end of the year and grows tax free. You can also take your HSA with you if you change jobs or retire.

2. What are the differences between HSAs, HRAs and FSAs?

Flexible Spending Accounts (FSAs) allow you to contribute pre-tax dollars to an account managed by your employer. You use the money for health-care spending but forfeit anything left over at the end of the year.

Health Reimbursement Accounts (HRAs) are tied to high-deductible policies. They are funded solely by your employer and give you money to spend on health care. You can carry over unspent money year to year, but you lose the balance if you switch jobs. Premiums tend to be lower than for traditional insurance but higher than for HSAs.

Health Savings Accounts (HSAs), which Congress authorized in 2003, are the newest addition to health insurance. With HSAs, you contribute your own pre-tax dollars to a health account. It is your money – any unspent funds stay in your account year to year and you take it all with you if you leave the company.

3. Is a HSA more expensive?

That depends on how much medical care you buy. If you get sick, you probably will spend more than under a traditional plan. HSAs’ monthly premiums tend to be lower. People who don’t use the medical system a lot will save money.

4. Can my employer contribute to my HSA?

Yes, although it is not required to. You get to keep any company contributions when you change jobs just as you would with a 401(k). Employers can increase their funding to keep up with health inflation, but they don’t have to. Current rules require them to make the same match to all workers, no matter how much eventually accumulates in employees’ HSA accounts.

5. Who is eligible for a HSA?

To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan, must not be covered by other health insurance (does not apply to specific injury insurance and accident, disability, dental care, vision care, long-term care), is not eligible for Medicare (under the age of 65), and can’t be claimed as a dependent on someone else’s tax return.

6. What can the money in a HSA be used for?

Medical expenses, including the deductible, co-payments and many charges not normally covered by health insurance, such as over-the-counter drugs, vision and dental care (even orthodontics and laser eye surgery), long-term care insurance premiums and future medigap premiums.

If used for other expenses, by individuals who are not disabled or over age 65, the amount will be taxable subject to a 10% tax penalty.

7. Will HSAs expand coverage and lower costs?

Point of the accounts is to shift cost burden of health care decisions onto consumers.

Some HSA positives:

• Provides financial incentive for people to avoid over-utilizing services
• Year-to-year rollover of unused funds allows people to save money for when they most need it.
• Reduce the inequity that exists because federal government subsidizes job-based health insurance more than coverage in the individual market (individuals/self-employed can start their own HSA account).

Some HSA negatives:

• Some critics worry that employees might skip needed medical care in order to save money. Cost-shift could result in less care or delays in care that ultimately increase medical expenses.
• Don’t address other reasons for escalating health care premiums, especially provider costs.
• Same goes for the fact that it’s a minority of people – typically the elderly and people with chronic conditions – that account for the majority of health care costs.
• Not available to all people without employer-sponsored coverage, particularly those with medical conditions.
• HSA tax incentives may encourage employers to shift benefits from comprehensive coverage to high-deductible plans. The concern is that if young and healthy employees leave job-based coverage for individual HDHPs offering cheaper rates and tax benefits, that comp coverage for others may become more expensive.

8. Who are the best candidates for HSAs?

Young, healthy, single individuals and others with few medical expenses are ideal candidates, especially if employer contributes to HSA. Higher-income workers of any age who can afford to cover medical expenses with other savings could also benefit.

Generally, the program will be better received if the worker base is:

• Young adult (over 21 but under age 30)
• Predominantly single,
• And/or responsible only for their own insurance needs
• Highly paid (over $50,000) on the strength of its tax-advantaged possibilities.

9. How should a plan be selected?

Employers/individuals should look through previous year’s medical expenses and estimate how much money they spent on premiums, co-payments and deductibles.

Compare to the cost of other types of plans.

10. How do HSAs compare to other plans?

The money placed into an HSA can be withdrawn at any time, before as well as after retirement, if the money is used for medical care expenses. Money not spent in one year may be rolled-over to the next. They are meant to be used as a supplement to a health insurance plan.

About the NYSSCPA

Representing 30,000 CPAs, the New York State Society of Certified Public Accountants (NYSSCPA) is the oldest and largest state accounting organization in the nation.

Incorporated in 1897, the Society is a not-for-profit organization that seeks to establish and maintain high standards of integrity, honor, and character among certified public accountants. Its members are CPAs working in public practice, industry, government and education in a state that serves as the home of Wall Street and major financial institutions.

The New York State Society of CPAs is located at 3 Park Ave., New York, NY 10016. To learn more about the Society call 800-633-6320 or visit the Society’s website at www.nysscpa.org.