Health Policy Check Up News

What You Need to Know About Health Savings Accounts

According to the Treasury Department, Health Savings Accounts or HSAs were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses. This new vehicle was part of the Medicare Modernization Act, which gave seniors and disabled Americans a new prescription drug benefit under Medicare.

“A Health Savings Account is a tax exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to qualify for an HSA. No permission or authorization from the IRS is necessary to establish an HSA. You set up HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.” Employers may also have additional information on HSAs.

To qualify for an HSA, one must meet the following requirements:

  • You are covered under a high deductible health plan on the first day of the month
  • You have no other health coverage except what is permitted under other health coverage by the IRS
  • You aren’t enrolled in Medicare
  • You can’t be claimed as a dependent on someone else’s 2016 tax return

The IRS has laid out a few benefits that one more enjoy from establishing an HSA:

  • You can claim a tax deduction for contributions you, or someone other than your employer, may make to your HSA even if you don’t itemize your deductions on a Schedule A (Form 1040)
  • Contributions to your HSA made by your employer may be excluded from your gross income
  • The contributions remain in your account until you use them
  • The interest or other earnings on the assets in the account are tax free
  • Distributions may be tax free if you pay qualified medical expenses
  • An HSA is “portable.” It stays with you if you change employers or leave the workforce.

While there are many benefits to an HSA, the question is whether this is a helpful tool for consumers to use? “Prescription drug costs for Americans under 65 years old are projected to jump 11.6 percent in 2017, or at a quicker pace than the 11.3 percent price increase in 2016, according to consulting firm Segal Consulting. Older Americans won’t get much of a break: Their drug costs are projected to rise 9.9 percent next year, compared with 10.9 percent in 2016. By comparison, wages are expected to rise just 2.5 percent in 2017.” With the combined factors of higher drug prices for improved patient outcomes, along with the increased amount of FDA approvals, this trend shows no signs of slowing down.

A recent survey below conducted by Devenir showed that since inception, HSAs have grown to an estimated $34.7 billion in assets and 18.2 million accounts for the period ending June 30, 2016.

At Frier Levitt Government Affairs, our focus is to show companies trends and their options for overcoming adverse priorities via our solutions. For the time period that we are currently in, it seems that the trend favoring consumer driven healthcare has returned with the Republican controlled Congress and Administration. As long as the Republican Party maintains control, we expect to hear this message resonate, especially with the debate surrounding the legislation designed to replace the Affordable Care Act (ACA). While health savings accounts are still in the early stages of adoption, it may be safe to assume that HSAs will see greater use, even though this vehicle may not provide total complete relief in a world that is witnessing faster prescription drug price increases. Contact us today for more information.