Speaking during the inaugural session of PLANSPONSOR’s Virtual HSA Conference for 2021, Roy Ramthun, founder and president of HSA Consulting Services LLC, said the best way to understand a health savings account (HSA) is if we think of it as a bank account that is usually paired. with a high-deductible health plan (HDHP) or a HSA-qualified health plan.
He said the HSA was matched with such plans to help HDHP participants cover the costs that come with the plans and to ensure they save tax during the process.
“Anyone covered by a high-deductible health plan can participate in the HSA,” he said. “The only people who can be covered by this kind of plan who can’t participate are tax addicts; each enrolled in Medicare, Medicaid or Tricare; or anyone involved in health FSA [flexible spending accounts] or HRA [health reimbursement arrangements]; or someone who is covered by other insurance with no deduction or low deduction. “In 2021, the minimum deduction is $ 1,400 for an individual and $ 2,800 for a family,” Ramthun said.
In addition to their triple tax benefits – contributions are non-taxable, return on investment is non-taxable, and withdrawals used for qualified medical expenses are not taxable – there are two other major benefits to the HSA, Ramthun said.
“Lower premiums help fund HSA; In general, a high-deductible health plan tends to bring down your premiums, and that money is then available to help fund your HSA account, ”he said. “Also, account holders receive free preventive health care below deduction.”
Ramthun added that insurance and insurance compatible with the HSA extends to a wide range of medical needs, including preventive care, dental care, vision coverage, cancer and other specific insurances, hospital insurance, accident insurance, medical liability insurance and discount cards.
Zack Hoffmann-Richards, an associate at Groom Law Group, said he favors HSAs, especially because of their triple tax benefits, lack of minimum or income limits, and additional contributions to catch up allowed at age 55.
“They also reduce the income of employers and employees and the payroll tax,” said Hoffmann-Richards. “Employers’ contributions are exempt from federal income and employment taxes, and unlike the FSA and HRA, employers are not required to determine whether employees use their HSA contributions for qualified medical expenses because the account is owned by the account holder, who is responsible for its management. If the account holder distributes money from the account for non-medical expenses under the age of 65, income tax and a 20% penalty will be paid on that money. These fees will not apply only if the account holder is disabled or over 65 years of age. ”
The IRS also allows HSA holders to make a one-time transfer from a traditional individual retirement account (IRA) or Roth IRA to the HSA, Hoffmann-Richards continued. “However, both accounts must be owned by the same person and must qualify for a contribution to the HSA for that year.”
Hoffmann-Richards said IRS Publication 502 contains all the details of what medical costs HSA can cover. Recent changes now allowed by the IRS to HSAs cover testing and treatment on COVID-19, telehealth services, and over-the-counter (OTC) medications, even if not prescribed, as well as menstrual care products and insurance premiums, he said.
He said the bills could cover the account holder, their spouse and any qualified children or relatives that the account holder claims depend on taxes.
HSAs are easy to use because they are usually tied to a debit card or online bill payment system, said Jamie Greenleaf, lead advisor and director of Cafaro Greenleaf. “Money is rolling from year to year and, if invested, it can grow significantly.”
The IRS also allows employers to automatically enroll their workers in the HSA as long as it includes a opt-out provision, she said.
“We think automatic enrollment of workers in the HSA is best practice because it helps participants succeed in creating dollars for lifelong medical equality,” Greenleaf said.
Finally, Hoffmann-Richards noted that HSAs are generally not subject to the Employee Retirement Income Security Act (ERISA). “DOWN [Department of Labor] it issued two Field Assistance Bulletins granting sponsors a safe harbor from ERISA if the establishment of the HSA was completely voluntary, ”he said.