HSA Frequently Asked Questions for Individual and Family Medical Plans

Questions and Answers on the Health Savings Account (HSA) from Assurant Health

HSA Plans

Q. What is a Health Savings Account (HSA)?
A. An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, are not taxable. The funds can then be withdrawn to cover qualified medical expenses tax free. Unused balances roll over from year to year. HSAs are a significant expansion of the MSA program. HSAs provide the following:

• Everyone with a qualified high deductible plan is eligible to participate (includes all size employers, the self-employed, individual and families who are not self-employed)
• HSAs can be funded by the employer, employee or combination of both within the same calendar year
• HSAs are permanent and portable
• Larger tax-deferred contributions to custodial accounts
• Broader deductible ranges

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Q. Who can qualify?
A. Everyone (not just self-employed or small businesses) with a qualified high deductible insurance plan is eligible for a tax-deductible HSA.

Q. What is a high deductible insurance plan?
A. A high deductible insurance plan is a health plan with a minimum deductible of $1,000 for single coverage and $2,000 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $5,100 for single coverage and no more than $10,200 for family.

Q. What deductible amounts are available?
A. The deductibles available January 1, 2005 are single: $1,100, $1,600, $2,100, $2,600, and $5,000; family: $2,200, $3,200, $4,200, $5,200, and $10,000

Q. Does the maximum OOP expense of $5,100 for individuals and $10,200 for families include the deductible?
A. Yes. Total OOP expenses including the deductible can be no greater than $5,100 for an individual and $10,200 for a family.

Q: Is an integrated (common) deductible part of the definition of high deductible health plan/HSA legislation?
A: No, a “common” deductible is not required. However, no family member may receive benefits until at least $2,000 has been incurred. Our plans have deductibles that are compliant with the HSA law.

Q: Will existing qualified plans continue to have deductibles increasing annually according to the Cost of Living Adjustment (COLA)?
A: Yes.

Q: Can minors have a “self-only” HSA?
A: According to the Treasury guidance, minors who are claimed as a dependent on another person’s tax return are not eligible to have a “self-only” HSA. They can be covered by their parent’s or guardian’s HSA plan.

Q: Does a person buying an HSA need to have “earned” income in order to deduct the contribution? Can they deduct it against “unearned” income i.e. pension, investment, etc.?
A: An individual who has less earned income (even no earned income) than his/her HSA contribution may still take the full above-the-line deduction.

Q: How are wellness benefits handled under an HSA plan?
A: There is no legal requirement for a high deductible health plan (HDHP) to provide benefits for preventive care or to cover these services before the minimum deductible is reached. We will continue to offer coverage for preventive care subject to deductible and coinsurance unless state mandated. This is similar to our other plans.

Q: How are prescription drug benefits handled under an HSA plan?
A: Prescription drugs are subject to the health plan’s deductible and coinsurance. Under the HSA legislation, individuals with an HDHP are not allowed to have prescription drug coverage that has no deductible or has a deductible that is lower than the minimum deductible required for an HDHP. However, individuals participating in an HSA who also have prescription drug coverage under a separate insurance plan or rider that does not meet the HDHP requirements may continue to be eligible for an HSA until January 1, 2006. We do not offer separate prescription drug coverage.

Q: Is the One Deductible the only HSA compatible plan?
A: No. RightStart HSA is also available in many states.
 

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HSA Custodial Accounts :

Q: What sets Assurant Health HSA plans apart from the competition?
A: As one of the first companies to offer Medical Savings Accounts and now Health Savings Accounts, Assurant Health is an industry leader in the “medical IRA” business. Our core reputation for claim payments was built over a century. You can choose from two options for your HSA administration – both options offer seamless administration to make it easy for you.

• A basic HSA administrative package that offers you the custodial account and an interest rate between 2-3% depending on your account balance
• A more robust package that, in addition to the package listed above, offers a debit card, checkbook and on-line capabilities to help you track how you spend your dollars (small fee applies in most states)

Q: What are the current interest rates on your HSAs?
A: For both administrative options, our HSA earns interest at the annual rate of 3% on a minimum balance of $5,000. An account balance of less than $5,000 but at least $750 will earn interest at the rate of 2%. Interest is compounded quarterly. It’s important for you to know that if you choose the HSA administration with the debit card, checkbook and on-line capabilities and, at some point move to a non-qualified health plan or drop your health coverage altogether, your interest rate is subject to change. We reserve the right to alter the minimum account balance requirements and the interest rates we pay.

Contributions

Q. What are the annual contribution limits?
A. Annual contribution limits for 2005 are capped at either the high deductible plan deductible or $2,650 for an individual or $5,250 for a family – whichever amount is less.

Q. What is the annual contribution deadline?
A. Clients have until the tax-filing deadline of the following year to make a contribution for the previous tax year.

Q. Is the HSA contribution pro-rated for the year?
A. Yes, if your plan isn't effective for the entire calendar year, only the pro-rated portion of the maximum may be contributed and deducted. For example, if your plan is effective February 1st, you can contribute 11/12 of the maximum contribution limit.

Q: How much can a client contribute to an HSA account if he/she changes the plan deductible mid-year?
A: If a client changes his/her deductible mid-year, his/her contribution will be pro-rated based on the new deductible. For example, if your client changes the deductible from $1,100 to $2,600 in June, his/her contribution is 6/12 of $1,100 ($550) plus 6/12 of $2,600 ($1,300), for a total of $1,850 for the year.

Q: If a client files an extension on his/her taxes, would he/she have extra time to contribute money into his/her HSA custodial account?
A: The client could contribute until the tax-filing deadline. An extension does not affect the amount that a client can contribute to the HSA.

Q: What happens under the HSA law once someone becomes eligible for Medicare?
A: Once a person enrolls in Medicare, he/she can no longer contribute to an HSA. However, he/she can use the accumulated funds to cover qualified medical expenses not covered under Medicare or his/her supplemental plan.

Tax Implications

Q: Since deposits can be made by anyone on behalf of the account beneficiary, who can legally take the tax deduction?
A: Contributions made by a family member on behalf of an eligible individual to an HSA are deductible by the eligible individual in computing adjusted gross income.

Q: Who can deduct premium payments from their taxes?
A: Today, the self-employed can deduct their premiums. We are working with congress to pass legislation that will allow everyone to deduct 100% of their premium payments. Until such legislation is passed, only the self-employed can deduct any portion of their premium payments.

Q: Can clients roll funds from an IRA, HRA or FSA into an HSA?
A: Rollovers from an IRA, HRA or FSA are not permitted.

Q: Can clients roll funds from an HSA into another investment vehicle, such as an IRA, HRA or FSA?
A: No.

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Disbursement and Qualified Medical Expenses

Q: What is the timing of disbursements relative to an incurred medical expense?
A: Federal law places no restriction on when disbursements must occur. With the basic administrative package, we offer seamless administration of your account and prompt disbursements for qualified medical expenses. Disbursements of $100 or more are issued on a monthly basis. Checks will be issued quarterly for requests that total less than $100. A claim total that is less than $10 will be addressed at year-end. With the more robust administrative package, you have more control. You’ll have access to a debit card, checkbook and on-line capabilities that put you in charge of how you want to handle disbursements.

Q: Can medical expenses incurred before the HSA was established be paid from the HSA?
A: Individuals who establish an HSA on or before April 15, 2005 can use the HSA to reimburse qualified medical expenses incurred on or after the later of: 1) January 1, 2004; or 2) the first day of the first month that they are covered under an HDHP. For HSAs established after April 15, 2005, medical expenses may not be paid from an HSA if the expenses were incurred before the HSA was established.

Q: Are health insurance premiums considered a qualified medical expense?
A: Health insurance premiums are not qualified eligible medical expenses except for the following scenarios: qualified long-term care insurance, COBRA and health care coverage while receiving unemployment compensation. Funds can also be used to pay for
Medicare Part A or B premiums (not Medicare supplement premiums).

Q: If an unmarried insured has single coverage, can HSA funds be used to pay for qualified medical expenses for his/her dependents?
A: Yes.

Q. Is there an age at which an individual must withdraw their money from an HSA?
A. With an IRA or 401K once the person reaches 70 1 ⁄ 2 they are required to make withdrawals from the money in these tax-deferred accounts. That is not the case with HSAs. There is no requirement that withdrawals from an HSA begin at 70 1 ⁄ 2 as there is with IRAs and 401Ks.

Medical Savings Accounts (MSAs)

Q. Can a Medical Savings Account be rolled into a Health Savings Account?
A. Yes. MSAs can be rolled into HSAs on a tax-free basis, but it is not necessary.

Q. Can MSA inforce business participate in the new HSA program (i.e. expand the contribution amounts)?
A. Yes. You can participate in the HSA program as long as you complete the HSA Adoption Agreement. MSA Clients may retain their current deductible, coinsurance limits and contribution amounts, if they choose.

Q: Can a policyholder continue to deposit into an MSA as long as the insurance plan is a qualified high deductible plan?
A: Yes. MSA policyholders have a lifetime right to their MSA custodial account under the MSA rules.

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