Qualified expenses that can be paid tax free from a Health Savings Account>

by Shelia Gulliton

There is a lot of confusion about what qualifies as a medical expense and what expenses can be properly paid from a Health Savings Account without incurring a tax penalty.

Generally, the IRS defines a qualified medical expense as the cost of diagnosis, cure, mitigation, treatment or prevention of disease affecting any part or function of the body. To be a qualified withdrawal, the service or item, does not have to be something which would normally be paid by traditional health insurance.

For instance, dental services might not be covered under your health insurance plan, but dental services are a qualified expense and may be paid for from an HSA without any tax penalty.

The definitive list of what services and products qualify can be found in the IRS Publication, Number 502. The list is very extensive. It starts with acupuncture and goes all the way to x-rays. Some of the qualified expenses may not be obvious, so lets discuss a few of the more unusual

Because qualified medical expenses, as defined, aim to promote a healthy life style, services such as alternative medicine treatments, psychologists and Christian Science practitioners are included.

Massage therapy is a qualified expense if it is recommended by a physician, physical therapist or chiropractor, but it will not be a qualified expense if the person self refers without the advice of a medical professional. Yoga and other mind-body programs will also qualify, if recommended by a health care professional.

On the other hand, vitamins or nutritional supplements would only be a qualified expense when recommended by a medical professional for the treatment of a specific condition. Pre-natal vitamins would always qualify.

Acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction may also be considered covered medical expenses.

Expenses as diverse as a Seeing Eye Dog or a corrective device such as a special mattress and/or board to assist a patient with arthritis or back problems are considered qualified.

Special education required because of a medical problem will qualify as do TV modifications such as closed caption devices for the hearing impaired. Transportation expenses related to treatment of an illness will qualify.

Most people find that there are so many items which qualify, that they use up all the money in their Health Savings Account without keeping enough in the fund to pay for their deductible in case of more traditional medical expenses.

What are some expenses that are not qualified? A vacation, no matter how needed to restore mental and emotional health, is not a qualified expense. Neither are diaper services, maternity clothes, cremation or burial expenses, bottled water or social or health club fees.

Another expense that cannot be paid from a Health Savings Account is the premium for health insurance unless you are unemployed for six months or are collecting unemployment benefits. Don't make a mistake and claim an expense whch is not qualified. If you do, you will have to pay a 10% penalty and add the amount of the expense to your taxable income.

Losing Your Job, Not Your Insurance>

(CBS)  Being laid off causes major financial strain, but it doesn't have to mean you won't have health insurance. Stephanie AuWerter, Contributing Editor for SmartMoney.com, has some tips for maintaining your coverage. 

Once you've been laid off, your mailbox will be flooded with paperwork. Keep an eye out for COBRA forms, though. "COBRA is a federal law... that allows you to maintain the healthcare coverage from your previous employer for up to 18 months after you lose your job," says AuWerter. The downside is that COBRA can be expensive, often costing over $1,000.00 or more a month for family coverage. Under President Obama's Stimulus Package, though, there was a tax subsidy included that will cover up to 65% of your COBRA premium cost for nine months, which can alleviate some of the financial strain. 



Keep in mind too that some people don't qualify for COBRA coverage. If you were fired, rather than laid off, or your former employer has less than 20 employees, COBRA may not be an option. 

If COBRA doesn't seem like it's for you, consider coverage under your spouse's plan. If you're married, "Because you're going from one group plan to another, you can't be denied coverage because of a pre-existing condition," says AuWerter. However, if your spouse loses his or her job or you're going to get a divorce in the near future, you'll need to invest in COBRA coverage through your spouse's plan instead of your own. 

You don't have to get coverage through an employer, though. Try shopping around for individual policies. "You never know, you might find a better deal," says AuWerter. Individual policy rates are based on your place of residence, health and the type of coverage you're looking to purchase. "No matter what, you don't want to scrimp on the quality of the provider," says AuWerter. If you don't qualify for COBRA, this may be the option for you. 

If you're looking to cut costs on an individual policy, consider a health savings account. "Here, you basically get coverage for the big healthcare expenses and you agree to self-insure for the smaller stuff," says AuWerter. You'll need to purchase health insurance with a high deductible and then pair it with your health care savings account. This can keep costs down and is usually a good option for people in relatively good health. 

If all else fails - or you're confused about your options - contact your state's insurance comissioner. "Among other things, they can tell you if your state has a 'high risk' pool... it can be an option of last resort," says AuWerter. 

No matter what, AuWerter says its important to maintain coverage. "It's a major cause of bankruptcy," she says. While insuring yourself or using COBRA might be costly, if a true medical emergency arises, it will be cheaper than paying out of pocket in the end. 

For more information on lay-offs and health insurance, as well as additional personal financial advice, click here to visit www.SmartMoney.com. 

Health Savings Account Enrollment Reaches Eight Million>

HSA accountholders come from all income levels

WASHINGTON, May 13 /PRNewswire-USNewswire/ -- Eight million Americans are covered by Health Savings Account (HSA)-eligible insurance plans, an increase of more than 31 percent since last year, a new census released today by America's Health Insurance Plans (AHIP) finds. Health Savings Accounts were authorized starting in January 2004. Since then, AHIP has conducted a periodic census of its members participating in the HSA/high-deductible health plan (HDHP) market.

Another report released today found HSA accountholders have a broad range of incomes across the country. The report, Estimated Income Characteristics of HSA Accountholders in 2008, used a geo-coding technique to estimate the income characteristics of HSA accountholders.

"HSA plans provide coverage to a number of consumers of all ages and incomes across the country, and they represent an important choice for employers and individuals when looking at the portfolio of coverage options available," said Karen Ignagni, President and CEO of AHIP.

Key findings from the census include:

• There was an increase of approximately 1.9 million Americans enrolled in an HSA plan since January 2008. Previous AHIP census reports found that 6.1 million were enrolled in January 2008, 4.5 million were enrolled in January 2007, 3.2 million were enrolled in January 2006, and 1.0 million were enrolled in March 2005.
• 30 percent of individuals covered by an HSA plan were in the small group market, 47 percent of individuals covered by an HSA plan were in the large-group market, and the remaining 23 percent were in the individual market.
• A majority of HSA enrollees are covered by Preferred Provider Organization (PPO) products (83 percent) and Health Maintenance Organization (HMO) products (10 percent). In the individual market, almost 92 percent of enrollees in HSA plans were in PPO products, while approximately 85 percent of enrollees in large-group and 76 percent of enrollees in small-group HSA plans were in PPO plans.
• States with the highest levels of HSA/HDHP enrollment were California (854,000), Florida (524,000), Illinois(497,000), Texas (476,000), Ohio (464,000), and Minnesota (388,000).

Key findings from the income characteristics analysis include:

• Households with a wide range of incomes hold HSA accounts, with almost half (49 percent) of accountholders living in neighborhoods with median incomes under $50,000 (incomes based on 2000 Census data).
• Average total deposits (including personal deposits, employer contributions, and interest) for all HSA accounts were $1,634 and average total withdrawals (including fees) were $1,063.

For more information about the 2009 census and the income report, please visit www.AHIPResearch.org.

Savings accounts may be future of health care>

By Andrew Dunn

andrewdunn@charlotteobserver.com

Posted: Wednesday, May. 20, 2009

The future of health insurance likely lies in personal spending accounts rather than traditional copayment plans, business leaders said Wednesday at a health care summit hosted by the Charlotte Chamber.

Though still making up a small percentage of medical insurance plans, health savings accounts and health reimbursement accounts are gaining in popularity as Charlotte-area businesses of all sizes look to cut costs.

Health savings accounts allow people to save money in an account designated solely for health care expenses. Employers often pay into the accounts as part of a benefits package, but all money in the accounts is owned by the individual.

Health reimbursement accounts are a similar type of health care plan but are owned by the employer. Businesses set aside a certain amount of money per year to pay employees back for medical expenses.

Participation in these programs is growing quickly.

About 8 million people nationwide are enrolled in health savings account programs, up 31 percent since last year and a seven-fold increase since 2005, according to the America's Health Insurance Plans association. In January, North Carolina had about 123,000 people enrolled in the plans, about 3percent of the nearly 4 million residents covered by private insurance.

Blue Cross and Blue Shield of North Carolina saw the number of Mecklenburg County residents enrolled in either savings or reimbursement accounts grow 49 percent in the past year – to 95,388.

Unlike traditional copay plans, where employees pay a fixed amount and company-sponsored insurance picks up the rest, these plans give employees a finite amount of money for health care. This encourages them to spend more wisely – saving big firms a lot of money. For small companies, these plans are a way to provide some form of health insurance. Contributions are tax-deductible for employers.

“The day of HMOs that you might have had in the 1990s has been driven out by rising health care costs,” said Roger Rollman, Southeastern regional spokesman for UnitedHealthcare.

But the accounts aren't pitched as something that just helps companies cut costs, said Cameron Hayes, employee benefit consultant at Benefit Controls of the Carolinas.

He recently helped move Cash Cycle Solutions, a Charlotte-based billing and processing company, to a health reimbursement account plan from a traditional preferred provider organization plan.

“It wasn't purely about how can the employer save money,” he said during Wednesday's panel discussion on health care costs. “It was about how to get the employee more engaged in the process.”

Hayes said Cash Cycle Solutions has seen a drop in number of days employees call in sick in the two years since the switch, presumably because their program stresses preventive care.

Still, the shift in responsibility from employers to employees has raised red flags. The plans are known in the industry as “consumer-driven,” meaning that individuals decide when and where to get care.

“They require that individuals be a lot more tuned in to what they're spending than they would be,” said Jennifer Troyer, economics professor at UNC Charlotte and moderator of the summit discussions on health care costs. “It's difficult to be a good consumer in the medical market. Seldom do we go into the doctor's office and say, ‘How much is this going to cost me today?'”

There is a chance that national health care reform that President Obama has promoted could eliminate these kinds of health coverage. But Austin Pittman, chief growth officer at UnitedHealthcare of the Carolinas, said he doesn't see that happening.

And Suzanne Johnson, an employee benefits specialist at Strategic Employee Benefit Services in Charlotte, said she expects such plans to keep catching on, particularly among Fortune 500 companies. She said 80 out of 400 firms in her portfolio now have either health savings accounts or health reimbursement accounts.

“This is the only way I'll have a career in 10 years.”