| General · Creates new
Health Savings Accounts (HSAs) to help individuals save for qualified
medical and retiree health expenses on a tax-free basis.
Eligibility
· Individuals under the age of 65 are eligible to contribute to an HSA if
they have a qualified health plan.
o For self-only policies, a qualified health plan must have a minimum
deductible of $1,000 with a $5,000 cap on out-of-pocket expenses (indexed
annually).
o For family policies, a qualified health plan must have a minimum
deductible of $2,000 with a $10,000 cap on out-of-pocket expenses (indexed
annually).
· Preventive care services are not subject to the deductible. In addition,
coverage for accidents, disability, dental care, vision care, and long-term
care is not subject to the deductible.
Contributions
· Contributions are allowed up to 100% of the health plan deductible. The
maximum annual contribution is $2,600 for self-only policies and $5,150 for
family policies (indexed annually).
· Individuals age 55 – 65 may make additional “catch-up” contributions of up
to $500 in 2004, increasing to $1,000 annually in 2009 and thereafter. A
married couple can make two catch-up contributions as long as both spouses
are at least 55. Catch-up contributions will help individuals accumulate
assets for retiree health expenses.
· Contributions may be made by individuals, family members and employers.
o Contributions made by individuals and family members are tax-deductible
(for the account beneficiary) even if the account beneficiary does not
itemize. Employer contributions are made on a pre-tax basis and are not
taxable to the employee. Employers will be allowed to offer HSAs through a
cafeteria plan.
· Investment earnings accrue tax-free.
Distributions
· HSA distributions are tax-free if they are used to pay for qualified
medical expenses, such as:
- Amounts paid for the diagnosis, cure, mitigation, treatment or prevention
of disease,
- Prescription drugs,
- Qualified long-term care services and long-term care insurance,
- Continuation coverage required by Federal law (i.e., COBRA),
- Health insurance for the unemployed,
- Medicare expenses (but not Medigap), and
- Retiree health expenses for individuals age 65 and older (Note: retiree
health plans would not have to meet the $1,000/$2,000 minimum deductible
requirements.)
· Distributions made for any other purpose are subject to income tax and a
10% penalty. The 10% penalty is waived in the case of death or disability.
The 10% penalty is also waived for distributions made by individuals age 65
and older.
Treatment at Death
· Upon death, HSA ownership may transfer to the spouse on a tax-free basis.
Effective Date · January 1, 2004. |