Here's to Your Health

Dealerships looking to reduce costs for group health coverage are considering High Deductible Health Plans (HDHPs) along with Health Savings Accounts (HSAs) as an extra or alternate type of coverage.

HSAs are federal tax-advantaged portable U.S. trust accounts, which are created in connection with HDHPs for the payment of an employee's current and future medical expenses.

HSAs and HDHPs are the buzz all over Washington. President Bush announced that he has one himself.

Here are some answers to help understand what this new trend is all about.

Who qualifies? What do I care?

HSAs can be funded by employer or employee contributions or both. Eligible employees may establish an HSA with or without employer involvement, and amounts invested are actually owned by the employee, so not subject to “use it or lose it rules.” Employer and employee contributions are not considered “wages” for tax purposes.

Most people who get an HSA already have health insurance. Generally, anyone covered by an HDHP is eligible. But the person cannot be covered by any other non-high deductible health providing the same benefits.

This does not include “permitted coverage” that provides health coverage for accident, disability, dental, vision or long-term care, nor “permitted insurance” for worker's comp, automobile, or disease insurance.

An individual cannot be covered by a prescription drug plan that is not an HDHP. A separate plan will not work either.

So what counts as an HDHP?

An HDHP is defined as any health plan with an annual deductible of at least $1,000 for an individual, $2,000 for a family. The deductible can be higher, but participants can't obtain payment or reimbursement until the deductible is satisfied.

Preventive care services may be covered on a no-deductible or low deductible basis. Those include periodic health examinations (including annual physicals), routine prenatal care, child and adult immunizations, tobacco cessation programs, weight-loss programs and screening services.

In 2005, an HDHP can't have an out-of-pocket expense limit that exceeds $5,100 for individuals or $10,200 for families. They can have lower out-of-pocket expense caps, but participants can't be required to pay for expenses in excess of out-of pocket caps.

The out-of-pocket expense cap is calculated by adding together co-pays, deductibles and “other amounts,” but not premiums.

How much can go into an HSA?

The maximum yearly contribution is whatever is lower: either 100% of the annual deductible under the high deductible health plan or a fixed, indexed amount. For 2005, this amount is $2,650 for individuals, and $5,250 for families.

The HSA contribution limit must be computed on a monthly basis, and HSA contributions by employees can be made on a pre-tax basis through a “cafeteria” plan.

Individuals who reach age 55 by the end of the tax year can make “catch-up” contributions over the limits. That limit is $600 for 2005. This will increase $100 annually, until it reaches $1000 in 2009.

No contributions are permissible for individuals entitled to Medicare benefits.

Employers can make contributions to employees' HSAs (but are not required to do so). As part of the non-discrimination rules, employers must make comparable contributions to all employees in the same coverage category.

What is an HSA good for?

HSAs can be used to pay for “qualified medical expenses” as defined by the law for the participant, his or her spouse, and dependents. However, expenses cannot be compensated by insurance or otherwise.

HSAs are becoming a popular employee benefit. While not for every employer or employee, more companies are giving serious consideration to offering HSAs and HDHPs as medical coverage options.

Susan L. Letney is an attorney with Epstein Becker Green Wickliff & Hall. She specializes in employee benefits. She is at [email protected]