HSAs Help Fight Health Care Costs

Elizabeth Myers, CUNA Mutual Gro
November 22, 2004

Designed to help individuals save pretax dollars for qualified medical and retiree health expenses, HSAs are part of the move toward consumer-directed health care, where consumers take more control over their health care spending. HSAs can be attractive to consumers because income earned on money in an HSA accrues tax-free, withdrawals for qualified medical expenses aren't taxable, and unused money may be rolled over and accumulated from year-to-year. HSAs present credit unions the opportunity to customize employee benefit packages by offering HSAs in tandem with a high-deductible health plan with low premiums.

Two Rules Govern HSA Contributions For individuals who want to contribute to an HSA, there are two rules:

The employee must have a high-deductible health plan in place. For calendar year 2004, that is defined as a deductible of at least $1,000 for an individual ($2,000 for a family), with an annual out-of-pocket maximum of $5,000 ($10,000 for a family) with no first-dollar benefits except for preventive care. Also, for 2004, individuals can contribute pretax dollars up to $2,600 a year ($5,150 for a family) or the amount of the health plan's deductible, whichever is lower. What constitutes preventive care is complex; employers should meet with a benefit specialist or tax professional before determining whether a health benefit option is considered a high-deductible plan.

The employee's other benefits coverage must be permitted coverage – such as an employee assistance program, specific disease insurance (such as cancer coverage), a wellness program, discount card or disease management program. Any plan with first-dollar medical benefits for treatment of an illness, injury, or other health condition is not permitted coverage. Typically, a medical reimbursement flex-spending plan or health reimbursement account is not permitted coverage because they typically cover first-dollar expenses for prescriptions and office calls for non-preventive care.

Factors to Consider Items for credit unions to consider before making HSAs available to employees include:

Evaluate your health benefits program. Do you have a high-deductible option? If not, it may not make sense to offer HSAs, unless you add a high-deductible option.

Are many employees covered under their spouse’s health insurance? Do those plans include high-deductible options? Is there enough demand to warrant offering HSAs?

Once you decide to offer HSA accounts and alter your benefits to accommodate them, you must thoroughly explain the changes to employees. There are many rules and caveats, and you must be committed to learning them and to fully educating employees. For IRS answers to HSA questions, visit www.treas.gov. Elizabeth Myers is employee solutions compliance manager at CUNA Mutual Group. Contact her at 608-238-5851. This article is copywritten by CUNA Mutual Group and first appeared in Dimensions Magazine at http://www.cunamutual.com/cmg/addedDimensions/home/0,1775,9057,00.html.