For the past few years, employers have
been increasing employee cost-sharing as a means to help control rising health care premiums. The use of higher
deductibles, coinsurance and co-payments
have helped reduce premium costs, but
many employers are finding now that these
measures alone are not doing enough.
Employers can engage employees to
make cost-conscious decisions. This “consumerism” approach to health care is the
idea behind High Deductible Health Plans
(HDHPs) and Health Savings Accounts
(HSAs).
Smart Business spoke with Amy
Broadbent, a consultant for Chamber-Choice, about the consumerism approach
to health care and recent changes to HSA
rules and regulations.
Are all employees enrolled in an HDHP required to open an HSA?
No. It is up to each employee to make his
or her own decision as to whether to open
an HSA. If an employee does open an HSA,
the account is owned and managed by that
individual. Employees make investment
selections based on whether they need
ready access to their funds or want to save
to meet long-term health care needs.
What are the tax advantages of an HSA for
employees?
Contributions to the HSA are exempt
from taxes, and any interest the account earns is tax-free. Withdrawals are not
taxed, as long as they are used for eligible medical expenses. The account is
fully portable, so employees who change
jobs can take their savings account with
them.
As more employees move toward
qualified high-deductible health plans,
it is important to understand the issues
that affect HSA plans and the tax
advantages that employees in these
plans can enjoy. Congress passed the
Tax Relief and Health Care Act of 2006,
which included provisions expanding
HSAs.
How does the act affect Flexible Spending
Account (FSA) contributions?
The act permits an employee to make HSA
contributions during the post-year-end FSA
grace period if the FSA balance was zero at
the end of the plan year, or the employee
transfers the FSA account balance to the
HSA.
How is an HRA/FSA transfer made to an
HSA?
The act allows a one-time transfer from
an HRA and/or an FSA to an individual’s
HSA between the date of enactment and
Jan. 1, 2012. The transferred amount may
not exceed the lesser of the FSA or HRA
account balance as of Sept. 21, 2006 or the
account balance as of the date of the transfer. Only employees eligible to make HSA
contributions may make such a transfer.
Is there any impact on contribution limits?
The act allows annual contributions of up
to the statutory maximum, regardless of
the individual’s actual deductible amount.
For 2007, the annual maximum contribution is $2,850 for single coverage and
$5,650 for family coverage.
Does the act allow mid-year enrollment contributions?
It allows individuals who are HSA eligible in
December to contribute an amount up to the
full HSA annual contribution limit. If the individual does not remain eligible for the following 12 months, then all contributions for
the months during which the individual was
not eligible will be included in gross income
and subject to a 10 percent excise tax.
The act’s provisions are generally positive
in terms of the HSA rules because they provide opportunities for participants to build
their funds and make it easier to put money
aside for personal health care. There are,
however, many nuances and specifics of
the act that remain to be addressed.
Among firms that offer health care benefits, percentage that say they are "very likely"
or "somewhat likely" to offer HDHP/HSA in the next year.
AMY BROADBENT is a consultant for ChamberChoice. Reach
her at [email protected] or (412) 456-7250.