TOPICS
TOPICS
Healthy Explanation
The Treasury Department and the IRS last week released guidance on the use of Health Savings Accounts, the new flexible spending plans that can be used to pay health care costs.
In April, officials at the Office of Personnel Management began a search for medical insurance firms to provide health savings accounts. Federal personnel officials have been pushing HSAs as an affordable option for workers with low monthly medical bills. Workers could contribute pre-tax money into the accounts, which would accumulate and then be used to pay medical costs.
HSAs would be available to Federal Employees Health Benefits Program members who are not eligible for Medicare and who have enrolled in a high-deductible plan. The account would serve as a safety net for catastrophic injuries. President Bush and other officials have said that HSAs are beneficial because they allow employees to choose their own medical care provider. The accounts - - which were created in the 2003 Medicare Modernization Act -- also do not require participants to spend accumulated money in a particular calendar year.
The Treasury/IRS HSA guidance, issued July 23, addressed a number of commonly asked questions about the accounts, including eligibility issues, the role of high-deductible plans and contributions to the accounts. Of particular note, the guidance stipulates that a husband and wife cannot have a joint Health Savings Account.
"Each spouse who is an 'eligible individual' ... and wants to make contributions to an HSA must open a separate HSA," the guidance says. "Only one person may be the account beneficiary of an HSA."
The guidance also notes that Defense personnel who are covered by the Tricare health care program are not eligible to open or contribute to a Health Savings Account.
Some lawmakers have voiced concern that the creation of HSAs will draw younger, healthy participants away from the standard FEHBP offering, which could weaken the overall plan for those who are left behind. OPM officials insist that federal workers will not flock to the HSAs, even if they are economically beneficial.
Insurance industry groups applauded the recent guidance.
"We are particularly encouraged that Treasury and IRS continue to act quickly to resolve key questions about how these plans can be structured and managed," said Paul Dennett, vice president for health policy at the American Benefits Council. "Today's guidance provides needed answers to many of the priority issues employers have asked the agency to clarify as they decide whether to offer HSAs to their employees."
COMMENTS
- A Health Care Flexible Spending Account (FSA) will not allow you to carry over unused funds from one year to the next although a proposal that would allow a $500 rollover from a Health Cae FSA is before congress. Currently employees who don't use the money they set aside in a Health Care FSA for medical expenses forfeit the money. The Health Care FSA plans have been around since the Tax Reform Act of 1978, but feds have only had the opportunity to participate in the Health Care FSA since last summer while private sector employers have offered Health Care FSA's for more than a decade. The new Health Savings Accounts (HSA's) which were part of the recent Medicare legislation and do allow unused funds to roll over from one year to the next. These accounts are individually owned, similar to an IRA. There are several differences between the Health Savings Accounts (HSA) and the Health Care FSA. You and/or your employer may only contribute to the Health Savings Account if you have a high deductible health plan. You can use the funds in your Health Savings Account to pay for your deductibe expense, you can save the funds for future expenses or you can use the funds to pay for medical expenses not associated with the deductible (laser eye surgery, over the counter aspirin, cold medicines, etc.). While contributions may only be made to the Health Savings Account while you are participating in a high deductible health plan, you can carry the funds over to future years to use when covered under other types of health plans (low deuctible PPO's, Medicare, etc.). Also, since the Health Savings Account is an individually owned account you may also withdraw the money at any time (paying a 10% penalty and taxes) if you don't want to use the money to pay for medical expenses (similar to an IRA.. you can withdaw money from an IRA piror to retirement and pay a 10% penalty). Both plans are great but for different reasons. Health Care Flexible Spending Accounts (FSA's) for tax free benefits for known medical expenses and/or Health Savings Accounts (HSA's) for tax free contributions, tax free growth and tax free reimbursement for medical expenses. New Federal Employee & Former Private Sector Benefits Analyst GovExec.com reader Posted August 4, 2004 3:40 PM
- Health Savings Accounts are a good idea if you know AHEAD of time that you will have large medical expenses. However, I will have some unexpected medical expenses this week and I could have used these savings. Why didn't I enroll? Because you can't carry them from year to year. I believe that more people would enroll if you could carry them to another year. As the government baby boomers get older, they will be needing more medical care. How can you foresee how much and if you are going to need these savings if you are healthy and foresee no problems? Will this ever be changed? Ginny Jordan Posted August 2, 2004 8:09 AM
