Health savings accounts incorporated in new health care bill
Since the health care reform bill was signed into law, ADA members with health savings accounts may be left wondering about the fate of their existing HSAs. The good news is that although many tax breaks with regard to health insurance will be eliminated, the health savings account will remain largely intact.
The ADA Washington Office, which monitors health care reform developments, reports that HSA-compatible policies will be available in the near future and most likely beyond. However, HSAs may be subject to further changes until the rules governing the new law are issued.
A health savings account is a tax-advantaged medical savings account that is available to Americans who are enrolled in a qualified high-deductible health plan. The funds contributed to the account are not subject to federal income tax at the time of deposit. Interest or any investment income earned on deposits is nontaxable, and the funds can be removed from the account tax-free to pay for qualified medical expenses. The HSA was a part of the George W. Bush health care reform bill that provided Medicare Part D, the popular Medicare program that provided seniors with prescription drug coverage.
To fund the new health care legislation, Congress has ordered a combination of new taxes coupled with the reduction of some long-standing health care related tax breaks.
First Horizon Msaver is the only health savings account provider endorsed for ADA members by ADA Business Resources.
E. Craig Keohan, president of First Horizon Msaver, believes that HSAs will play a critical role in making the health care reform a success.
"Ironically, I believe the administration realized that low-premium HSA-type health plans coupled with their triple tax-advantaged savings vehicle were exactly what were needed to draw the young and the healthy into the insurance pool alongside the old and the not so healthy," said Mr. Keohan.
In other words, HSAs help insurance companies spread the risk among a larger population, thus making insurance affordable for everyone. HSAs are attractive to a younger population because they offer low premium insurance coverage with a slightly higher deductible, plus HSA owners receive tax breaks for the money saved and interest earned on any distributions used for qualified medical expenses.
"In many ways, an HSA health plan is the perfect protection and savings tool for dentists," said Mr. Keohan. "It's an affordable and smart alternative for themselves and for their employees. The health plan provides protection against large unexpected medical bills, while the HSA provides for a triple tax advantaged way to save and invest for the future."
While it was a surprise to some in the industry that HSAs were largely protected from the health care reform, not all aspects of these savings and investment tools were kept intact. The two slight changes to HSAs are:
- Effective Jan. 1, 2011, tax-free HSA dollars may no longer be used to purchase over-the-counter drugs not prescribed by a doctor.
- Effective Jan. 1, 2011, the tax on HSA distributions that are not used for qualified medical expenses will increase to 20 percent from 10 percent.
Mr. Keohan, who also serves as chairman emeritus of the American Bankers Association HSA council, credits the work of the council's director, Kevin McKechnie, and other HSA council members for bringing lawmakers around to the idea that HSAs could be good for health care reform.
"Over the past year, we called on each member of Congress at least twice," Mr. Keohan said. "We left them with the message that Americans are not only benefiting from the lower premiums and tax savings these plans offer, but also from the incentive to make better health decisions."
ADA members who open a health savings account with First Horizon Msaver already enjoy low fees, including free transactions, free withdrawals at any ATM nationwide, and free banking online and bill pay online. Until Aug. 31, members who apply for an HSA through First Horizon will pay no administration fees for 12 months.
For more information, visit www.dentalhsa.com or call 1-866-257-2652.