Health Savings Account
Year 2007

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What is it?

• Portable, non-forfeitable, individual tax-advantaged accounts
• May be funded by contributions from employee, employer and /or anyone else
• Reimburses qualified medical expenses. Section 213(d)
• Reimburses certain premiums > COBRA coverage, long -term care, coverage while on unemployment compensation, or for any health insurance after 65 except Medicare Supps.
• Can be used for non-medical expenses without penalty after age 65...subject to income tax
• It is generally not an ERISA plan or COBRA plan or HIPPA plan.

Eligible Individual

• Must be covered under a High Deductible Health Plan (HDHP)
• May not be entitled to Medicare or be anyone else's tax dependent
• May not have any non-HDHP coverage

Minimum Annual Deductible (for 2007 indexed for inflation)

• Individual $1,100
• Family $2200

Maximum Out-Of-Pocket Expense Limit (for 2007 indexed)

• Individual $5,500
• Family $11,000

Contributions

• May only be made for months in which the account holder is/was an "eligible individual".
• New exception for year 2007. No pro-ration rule. Mid-year enrollees in the HDHP are treated as having been "eligible individuals" for the entire year IF they are eligible in December of that year
• $2,850 for individual
• $5,650 for family
• Special rules for married individuals: if either spouse has family coverage, then both spouses are treated as having only that family coverage. If both spouses have family coverage, then the lower annual deductible is used for purposes of determining eligibility and the combined monthly contribution limit. The contribution limit is divided equally between the married couple (unless they agree on a different division)
• Timing can be flexible in one or more payments. Made any time prior to eligible individual's tax deadline (without extensions). The max may be paid at the first of the year.
• Rollovers are acceptable from FSA and HRA and do not count against the individual's HSAs contribution limit.  Limited to one such distribution.
• Rollovers are acceptable from IRAs but subject to certain restrictions

Key Legal Requirements

• Can move balances to new year without tax consequence
• Comparability Requirement: Must make comparable contributions (same amount or percentage of HDHP deductible) on behalf of all comparable participating employees during the same period. Applied separately to part-time employees.
• Doesn't apply to employees whose health benefits were subject of good faith collective bargaining
• The tax relief and healthcare act of 2006 (TRHA) clarifies that the comparability requirement does not prevent employers from discriminating in favor of non-highly compensated employees.
• Reporting requires form 8889 for employees. Employers contributions that are made should be recorded in Box 12 - Code W.  Trustees & Custodians - IRS FORMS 5498-SA and 1099-SA

NOTE: The insurance policy can pay no benefits (except for preventive care), including for Rx, until the deductible has been satisfied. (No embedded individual deductibles on family coverage). The IRS has issued a "safe harbor" definition, saying it includes, but is not limited to:

1. periodic health evaluations, such as annual physicals (and the tests / diagnostics)
2. procedures ordered in conjunction with such evaluations
3. well-baby and well-child care
4. immunization for adults and children
5. tobacco cessation and obesity weight-loss programs
6. screening devices (see notice 2004-23)

NOTE:  You can have other insurance that is "permitted" by the IRS in conjunction with HSAs.

1. Workers compensation
2. Tort liabilities
3. liabilities relating to ownership or use of real property
4. Insurance that pays a fixed amount per day of hospitalization
5. Accident coverage
6. Disability coverage
7. Dental coverage
8. Vision coverage
9. Long term care coverage
10. Many EAPs, disease management and wellness programs should not prevent HSAs eligibility