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Hsa Insurance Plans Question & Answers

2015 July 9
by Sarah Fields

Helen asks…

Is your healthy insurance premium tax deductible? Is it better to do a group plan or individual plans?

I have a small company with three employees – is it better we get a group health insurance plan or all get individual plans? what are the tax benefits? I was told you can deduct more of the premiums if you are a company rather than an individual?

Sarah Fields answers:

I have been a tax accountant for 27 years. I do not have enough information to give you a reliable answer to your question. However, you should look into a relatively new tax development called the HRA or HSA. Your bank should be able to provide you with information as to how these plans work. They are very flexible and work only when people purchase high-deductible health plans. The HRA or HSA accounts are used to pay out-of-pocket medical expenses (but not the insurance premiums) such as your deductible or co-pays under the plan. They are like IRA accounts for your health. I like them a lot. Please don’t be a fool; consult a tax professional. You are in a very complicated area of tax law.

Betty asks…

Can I have a employer sponsored Heath saving account?

I am currently cover by my wife’s family health insurance plan, which is not a High deductible plan. Can I have a Health Savings account that is offered by my company?

Sarah Fields answers:

No – not as long as you are under your wife’s plan. See here:

Joseph asks…

What are the rules regarding Health Savings Accounts?

I started a new job back in Aug. 2006. My employer offers a group health insurance plan but it is not a very good one and has a high deductible. The company dropped the ball in getting me signed up for the plan in time and now their not so good plan isn’t even going to cover a pre-existing condition. I talked to the boss and came to an agreement that in lieu of being covered under their plan they would just contribute $130 monthly (the same amount they would pay to put me on their plan) to a Health Savings Account that I could use to pay medical expenses. He came back and said that he could not make good on the agreement because he was told I had to have some type of insurance coverage to contribut to an HSA. He also said that the max I (or the company on my behalf) could contribute to one of these type accounts is $1100 annually. Which is $460 less than what we agreed upon. Can anyone explain the rules of HSA‘s to me and what other options I might consider to work this out?

Sarah Fields answers:

An individual can set up an HSA for himself or his family. An employer can add an Health Savings Account option to the so-called cafeteria benefit plan it may already offer.

The money put into the plan is before taxes, including Social Security, if part of an employer plan. Otherwise it is a above-the-line deduction, meaning you don’t have to itemize your deductions to get the tax break and that the deduction is not subject to the phase-out rules that make many itemized deductions unavailable to high wage earners.

The Health Savings Account is set up like an IRA. A trustee approved by the IRS must be used. Money put in the plan grows tax free and funds withdrawn for qualified medical expenses are also tax free. Unlike the older Flexible Savings Accounts offered in employer cafeteria plans, you don’t have to spend the money put into the account by year end or otherwise lose whatever’s left. Money can be rolled over from year to year. This can allow for a nice chunk of money to accumulate that can be withdraw tax free at age 65.

In order to qualify for a Health Savings Account, the individual or family must purchase a high deducible health insurance policy. These are special policies that have a minimum deductible of $1000 to a maximum of $5000 for an individual and $2000 to $10,000 for a family. The higher the deductible, the lower the premium.

Individuals can contribute and deduct the lesser of $2250 or the deductible on the policy: for married couples or families it is double that. If over 55, the contribution and deduction is $600 higher for individuals and $1200 higher for couples and will continue to rise at $100 a year until 2009, where it will be capped at $1000 for individuals and $2000 for families or couples.

The money in the Health Savings Account cannot be used to pay the premiums for this policy except in certain circumstances (basically when you’re unemployed). It is meant to meet the deductible on the policy, co-pays, drug costs, eyeglasses or any other medical expense that could be itemized on an individual tax return as a medical expense.

Money used to pay qualified medical costs is withdrawn tax free. Money withdrawn in excess of qualified medical expenses is taxed as income and subject to a 10% penalty, unless the owner is disabled or over 65. Any money in the account at death is added to the taxable estate.

There are no income limits on Health Savings Accounts. If started early, when you are still young and healthy, a substantial amount of money could accumulate to either meet higher medical costs as you get older or to use to supplement your income in retirement.

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