Qualified expenses that can be paid tax free from a Health Savings Account

by Shelia Gulliton

There is a lot of confusion about what qualifies as a medical expense and what expenses can be properly paid from a Health Savings Account without incurring a tax penalty.

Generally, the IRS defines a qualified medical expense as the cost of diagnosis, cure, mitigation, treatment or prevention of disease affecting any part or function of the body. To be a qualified withdrawal, the service or item, does not have to be something which would normally be paid by traditional health insurance.

For instance, dental services might not be covered under your health insurance plan, but dental services are a qualified expense and may be paid for from an HSA without any tax penalty.

The definitive list of what services and products qualify can be found in the IRS Publication, Number 502. The list is very extensive. It starts with acupuncture and goes all the way to x-rays. Some of the qualified expenses may not be obvious, so lets discuss a few of the more unusual

Because qualified medical expenses, as defined, aim to promote a healthy life style, services such as alternative medicine treatments, psychologists and Christian Science practitioners are included.

Massage therapy is a qualified expense if it is recommended by a physician, physical therapist or chiropractor, but it will not be a qualified expense if the person self refers without the advice of a medical professional. Yoga and other mind-body programs will also qualify, if recommended by a health care professional.

On the other hand, vitamins or nutritional supplements would only be a qualified expense when recommended by a medical professional for the treatment of a specific condition. Pre-natal vitamins would always qualify.

Acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction may also be considered covered medical expenses.

Expenses as diverse as a Seeing Eye Dog or a corrective device such as a special mattress and/or board to assist a patient with arthritis or back problems are considered qualified.

Special education required because of a medical problem will qualify as do TV modifications such as closed caption devices for the hearing impaired. Transportation expenses related to treatment of an illness will qualify.

Most people find that there are so many items which qualify, that they use up all the money in their Health Savings Account without keeping enough in the fund to pay for their deductible in case of more traditional medical expenses.

What are some expenses that are not qualified? A vacation, no matter how needed to restore mental and emotional health, is not a qualified expense. Neither are diaper services, maternity clothes, cremation or burial expenses, bottled water or social or health club fees.

Another expense that cannot be paid from a Health Savings Account is the premium for health insurance unless you are unemployed for six months or are collecting unemployment benefits. Don't make a mistake and claim an expense whch is not qualified. If you do, you will have to pay a 10% penalty and add the amount of the expense to your taxable income.

Losing Your Job, Not Your Insurance

(CBS)  Being laid off causes major financial strain, but it doesn't have to mean you won't have health insurance. Stephanie AuWerter, Contributing Editor for SmartMoney.com, has some tips for maintaining your coverage. 

Once you've been laid off, your mailbox will be flooded with paperwork. Keep an eye out for COBRA forms, though. "COBRA is a federal law... that allows you to maintain the healthcare coverage from your previous employer for up to 18 months after you lose your job," says AuWerter. The downside is that COBRA can be expensive, often costing over $1,000.00 or more a month for family coverage. Under President Obama's Stimulus Package, though, there was a tax subsidy included that will cover up to 65% of your COBRA premium cost for nine months, which can alleviate some of the financial strain. 



Keep in mind too that some people don't qualify for COBRA coverage. If you were fired, rather than laid off, or your former employer has less than 20 employees, COBRA may not be an option. 

If COBRA doesn't seem like it's for you, consider coverage under your spouse's plan. If you're married, "Because you're going from one group plan to another, you can't be denied coverage because of a pre-existing condition," says AuWerter. However, if your spouse loses his or her job or you're going to get a divorce in the near future, you'll need to invest in COBRA coverage through your spouse's plan instead of your own. 

You don't have to get coverage through an employer, though. Try shopping around for individual policies. "You never know, you might find a better deal," says AuWerter. Individual policy rates are based on your place of residence, health and the type of coverage you're looking to purchase. "No matter what, you don't want to scrimp on the quality of the provider," says AuWerter. If you don't qualify for COBRA, this may be the option for you. 

If you're looking to cut costs on an individual policy, consider a health savings account. "Here, you basically get coverage for the big healthcare expenses and you agree to self-insure for the smaller stuff," says AuWerter. You'll need to purchase health insurance with a high deductible and then pair it with your health care savings account. This can keep costs down and is usually a good option for people in relatively good health. 

If all else fails - or you're confused about your options - contact your state's insurance comissioner. "Among other things, they can tell you if your state has a 'high risk' pool... it can be an option of last resort," says AuWerter. 

No matter what, AuWerter says its important to maintain coverage. "It's a major cause of bankruptcy," she says. While insuring yourself or using COBRA might be costly, if a true medical emergency arises, it will be cheaper than paying out of pocket in the end. 

For more information on lay-offs and health insurance, as well as additional personal financial advice, click here to visit www.SmartMoney.com. 

Health Savings Account Enrollment Reaches Eight Million

HSA accountholders come from all income levels

WASHINGTON, May 13 /PRNewswire-USNewswire/ -- Eight million Americans are covered by Health Savings Account (HSA)-eligible insurance plans, an increase of more than 31 percent since last year, a new census released today by America's Health Insurance Plans (AHIP) finds. Health Savings Accounts were authorized starting in January 2004. Since then, AHIP has conducted a periodic census of its members participating in the HSA/high-deductible health plan (HDHP) market.

Another report released today found HSA accountholders have a broad range of incomes across the country. The report, Estimated Income Characteristics of HSA Accountholders in 2008, used a geo-coding technique to estimate the income characteristics of HSA accountholders.

"HSA plans provide coverage to a number of consumers of all ages and incomes across the country, and they represent an important choice for employers and individuals when looking at the portfolio of coverage options available," said Karen Ignagni, President and CEO of AHIP.

Key findings from the census include:

• There was an increase of approximately 1.9 million Americans enrolled in an HSA plan since January 2008. Previous AHIP census reports found that 6.1 million were enrolled in January 2008, 4.5 million were enrolled in January 2007, 3.2 million were enrolled in January 2006, and 1.0 million were enrolled in March 2005.
• 30 percent of individuals covered by an HSA plan were in the small group market, 47 percent of individuals covered by an HSA plan were in the large-group market, and the remaining 23 percent were in the individual market.
• A majority of HSA enrollees are covered by Preferred Provider Organization (PPO) products (83 percent) and Health Maintenance Organization (HMO) products (10 percent). In the individual market, almost 92 percent of enrollees in HSA plans were in PPO products, while approximately 85 percent of enrollees in large-group and 76 percent of enrollees in small-group HSA plans were in PPO plans.
• States with the highest levels of HSA/HDHP enrollment were California (854,000), Florida (524,000), Illinois(497,000), Texas (476,000), Ohio (464,000), and Minnesota (388,000).

Key findings from the income characteristics analysis include:

• Households with a wide range of incomes hold HSA accounts, with almost half (49 percent) of accountholders living in neighborhoods with median incomes under $50,000 (incomes based on 2000 Census data).
• Average total deposits (including personal deposits, employer contributions, and interest) for all HSA accounts were $1,634 and average total withdrawals (including fees) were $1,063.

For more information about the 2009 census and the income report, please visit www.AHIPResearch.org.

Savings accounts may be future of health care

By Andrew Dunn

andrewdunn@charlotteobserver.com

Posted: Wednesday, May. 20, 2009

The future of health insurance likely lies in personal spending accounts rather than traditional copayment plans, business leaders said Wednesday at a health care summit hosted by the Charlotte Chamber.

Though still making up a small percentage of medical insurance plans, health savings accounts and health reimbursement accounts are gaining in popularity as Charlotte-area businesses of all sizes look to cut costs.

Health savings accounts allow people to save money in an account designated solely for health care expenses. Employers often pay into the accounts as part of a benefits package, but all money in the accounts is owned by the individual.

Health reimbursement accounts are a similar type of health care plan but are owned by the employer. Businesses set aside a certain amount of money per year to pay employees back for medical expenses.

Participation in these programs is growing quickly.

About 8 million people nationwide are enrolled in health savings account programs, up 31 percent since last year and a seven-fold increase since 2005, according to the America's Health Insurance Plans association. In January, North Carolina had about 123,000 people enrolled in the plans, about 3percent of the nearly 4 million residents covered by private insurance.

Blue Cross and Blue Shield of North Carolina saw the number of Mecklenburg County residents enrolled in either savings or reimbursement accounts grow 49 percent in the past year – to 95,388.

Unlike traditional copay plans, where employees pay a fixed amount and company-sponsored insurance picks up the rest, these plans give employees a finite amount of money for health care. This encourages them to spend more wisely – saving big firms a lot of money. For small companies, these plans are a way to provide some form of health insurance. Contributions are tax-deductible for employers.

“The day of HMOs that you might have had in the 1990s has been driven out by rising health care costs,” said Roger Rollman, Southeastern regional spokesman for UnitedHealthcare.

But the accounts aren't pitched as something that just helps companies cut costs, said Cameron Hayes, employee benefit consultant at Benefit Controls of the Carolinas.

He recently helped move Cash Cycle Solutions, a Charlotte-based billing and processing company, to a health reimbursement account plan from a traditional preferred provider organization plan.

“It wasn't purely about how can the employer save money,” he said during Wednesday's panel discussion on health care costs. “It was about how to get the employee more engaged in the process.”

Hayes said Cash Cycle Solutions has seen a drop in number of days employees call in sick in the two years since the switch, presumably because their program stresses preventive care.

Still, the shift in responsibility from employers to employees has raised red flags. The plans are known in the industry as “consumer-driven,” meaning that individuals decide when and where to get care.

“They require that individuals be a lot more tuned in to what they're spending than they would be,” said Jennifer Troyer, economics professor at UNC Charlotte and moderator of the summit discussions on health care costs. “It's difficult to be a good consumer in the medical market. Seldom do we go into the doctor's office and say, ‘How much is this going to cost me today?'”

There is a chance that national health care reform that President Obama has promoted could eliminate these kinds of health coverage. But Austin Pittman, chief growth officer at UnitedHealthcare of the Carolinas, said he doesn't see that happening.

And Suzanne Johnson, an employee benefits specialist at Strategic Employee Benefit Services in Charlotte, said she expects such plans to keep catching on, particularly among Fortune 500 companies. She said 80 out of 400 firms in her portfolio now have either health savings accounts or health reimbursement accounts.

“This is the only way I'll have a career in 10 years.”

Health Care Wars - This Time It's Personal

Coming This Summer: Health Care Wars - This Time It's Personal
by Newt Gingrich

The Washington battle that will most directly and profoundly affect you and your families' lives is the battle for the future of our health care system, which will play out this summer. On one side are forces advocating a big government, big regulation approach that will transform the private health system into a government-dominated bureaucracy.

On the other side is a new plan that gives individual Americans control over their health care, and provides the affordability and choice that makes that control meaningful.

Both sides share the goals of providing health insurance to all Americans and reining in health care costs. The difference is how each plan would get there. One by government controlling - and ultimately rationing - your care. The other by you controlling and making informed decisions about you and your families' most precious possession: Your health.

A Transformative Proposal for Health Care: The Patients Choice Act

While the nation waits to see the plan President Obama will put forward, last week Senators Tom Coburn (R-Okla.) and Richard Burr (R-N.C.), and Representatives Paul Ryan (R-Wis.) and Devin Nunes (R-Calif.) introduced The Patients' Choice Act of 2009.

They should be applauded for their leadership. The Patients' Choice Act is a serious, transformative proposal that, if enacted, would dramatically improve our health care system and the health of individual Americans.

Unlike government-centered plans that empower bureaucracies, The Patients' Choice Act empowers individuals.

Empowering Individuals Instead of Bureaucracies

The Patients' Choice Act takes on the toughest challenges we face: improving individual health and managing chronic disease; delivering the best quality care; expanding affordable coverage to every American; and putting Medicare and Medicaid on solid, sustainable ground.

And every idea starts in exactly the right place: with the individual. Individuals should be empowered and encouraged to decide for themselves what is best for them. From choosing what doctor to see to what insurance to buy to what course of treatment to take, only an individual-centered health care system will bring about the real change we need.

According to its sponsors, the main goals of The Patients' Choice Act are these:

Emphasize Prevention: Focusing on prevention not only leads to better health but lowers long term costs.

Create a Market that Works for Patients: The Patients' Choice Act gives insurance companies incentives to cover chronically sick patients, provides businesses transparent rules, and gives patients convenient and affordable options.

Guarantee a Choice of Coverage Options: Patients can choose from a variety of private insurance plans.

Insist on Fairness for Every Patient.

Fairly Compensate Patient Injuries: The bill creates a legal system that serves the interests of the injured, not the interests of trial attorneys.

No Tax Increases or New Government Spending: For each American, our country already spends almost twice as much as other industrialized countries spend on health care. It's time we got something better for our money.

Restore Accountability to Government Programs: Our children and grandchildren will face future tax increases to pay for the $36 trillion in unfunded liabilities in the Medicare program alone unless something changes. And, according to some estimates, fraud and waste account for 10 percent of all health care spending. That's approximately $100 billion each year.

Include Ideas for Governors and States: Washington has proven time and again that a one-size-fits-all mandate won't work. True health reform must include governors, states, and every American citizen.

It's Time to Move From Ideas and Options to Real Solutions

The Patients' Choice Act complements the thoughtful work done so far by Sen. Max Baucus (D-Mont.), chairman of the Senate Finance Committee, and Sen. Chuck Grassley, the ranking Republican member. They have published three detailed papers exploring what reform options are being considered in three major areas: improving the delivery of care, expanding coverage, and paying for reform. They've invited public comment throughout the process and worked with industry representatives, in public hearings and in private meetings.

The introduction of this transformative legislation is proof that it's time to move from options to real solutions.

The Center for Health Transformation (CHT), which I helped found, is working with both sides of this debate to encourage legislation that encompasses a number of policy proposals that are necessary to transform our health system. Our proposals span the entire health care spectrum from improving individual health, converting to an electronic health system, combating fraud and waste in our Medicare and Medicaid programs, and expanding coverage to every American.

10 Essential Principles of Health Care Reform

CHT has developed the following 10 principles which we believe must be included in any major health reform bill.

1. Every American should be encouraged and incentivized to take personal responsibility for his or her health.
2. Every American should have genuine access to quality, cost-effective care that best meets his or her individual needs.
3. Every American should have health insurance coverage (private or public) that is affordable, accessible, and portable-no matter where he or she chooses to work or live.
4. Health care providers should deliver the best possible care based upon best evidence or best practice.
5. Every provider of care, from doctors and nurses to pharmacists and hospitals, should be interconnected with an electronic health record for every American.
6. Payment to providers should be based on the quality of care delivered, not the number of transactions or services provided.
7. Cost, quality, and performance information should be available and accessible to all consumers.
8. Government should promote and encourage competitive, market-based solutions in the private sector.
9. Government should offer effective, efficient, and sustainable public programs for those who need them.
10. Government should aggressively invest in targeted clinical research, laying the foundations for future breakthroughs and cures.
    

You can read our entire plan here along with a checklist for you to grade any proposals your representatives put forth.

The problems we face in health care know no political party, and neither do all the solutions. As the debates begin in earnest over how to actually solve these problems, everyone should be encouraged to offer ideas. We are at our best when we work collaboratively to put forth bold, transformative solutions.

Your friend,

Newt Gingrich

Health Savings Accounts Fuel Better Healthcare, Safer Investing

Why HSAs Can Help People Make Money
As Well As Save It

As consumers watch Wall Street crash, with large insurers like AIG sinking like a boulder in quicksand, many people find themselves worried about things they never used to worry about before.

Will my healthcare company be around next year? Will I lose the money I have in the system? What if they go under while I’m in the hospital? Will I be protected?

The security of a Health Savings Account (HSA) is more attractive than ever, but there’s a unique bonus inherent in the structure of HSAs – the ability to invest your HSA funds in a safe haven, and build a bigger healthcare nest-egg for the future.

That’s why Rick Monello, CEO of Custom Health Plans (http://www.customhealthplans.com/), believes that agents will be far more successful offering their clients HSAs than they were last year, as long as they understand the appeal of the investment side of the equation.

Health Savings Accounts, or HSAs, came about as part of the Medicare Reform Act of 2003, and they offer consumers a tax-free option for healthcare. With HSAs, consumers typically employ a high-deductible health insurance policy to protect against major medical expenses, while establishing a savings account to use for small, day to day medical expenses. What makes it affordable is that the high deductible policy is significantly less expensive than traditional HMOs, and the money they deposit into their HSA is PRE-TAX dollars. The law allows people to take money out of their paycheck and deposit it directly into their HSA before they pay taxes on it. So, not only do they save on their insurance premiums, but they are also able to save on their taxes. Moreover, HSA money can be used to pay for ANY medical expense, from over-the-counter headache medications, knee braces or orthopedic shoes. Anything remotely medical can be paid for out of that account, all funded with pre-tax dollars. Finally, at the end of the year, any money left over in the HSA account can be rolled over – tax-deferred – to use the next year. Flex spending accounts don’t allow that – if you don’t use it during the calendar year, you lose it.

These plans were created in response to the rising cost of health care with the intent to give the consumer back the control of their health care costs and in many cases reduce premiums by up to 50 percent.

These unique plans provide consumers greater control, more choices, tax advantages and are generally more affordable than their HMO and PPO second cousins, according to Monello. Plus, the interest in investing their HSA funds is growing.

According to a survey done by Cigna last year, more than 65 percent of HSA customers said they would be interested in putting their excess HSA funds into mutual funds and other types of investment vehicles that are traditionally safe havens for their money. When you consider that HSA funds come from pre-tax contributions, it’s like double-dipping. Not only do they save on their taxes, but they are also able to grow that amount through the investment options now available for them.

"Based on the current economic conditions on Wall Street, nothing in the marketplace can match the benefits of HSAs," Monello said. "People are afraid to put their money in stocks anymore and they are looking for vehicles with tax shelters with attractive tax benefits. With HSAs, customers can solve both problems: where to safely put your money and how to provide incredible health coverage for your family. HSAs are a good alternative to kill two birds with one stone, provide affordable health care and tax benefits in an uncertain and shaky economy."

Dallas HSA

Texas Health Savings Accounts

Hello My Friends I get many questions about Health Savings Accounts. I came across a very interesting Article I thought you may find informative and thought provoking that I read recently. Here is the Link:

http://www.pittsburghlive.com/x/tribunereview/opinion/s_576039.html