The Health savings account (HSA)

Solution Preview

The Health savings account (HSA) is the new name for the Medical savings account (MSA) plans in the United States. The provisions of the MSA were made more advantageous and available to more people in the new HSA. Along with it were included some demand and supply side controls.

DEMAND SIDE COST CONTROL MECHANISMS
1. You must have an HSA qualified high deductible health plan to open or contribute to a Health Savings Account. This controls the demand side.
2. Switching to a high deductible health plan from a traditional low deductible health plan will cut the cost of your health plan substantially. You deposit the savings gained into your Health Savings Account. The whole point of a health savings account is to allow you to use that money on a tax-free basis to pay for your health expenses below your new, higher deductible. This is a demand control mechanism.
3. The money in your Health Savings Account is your own. This means your employer cannot tell you what to do with your own money or restrict what you can spend it on. Since it is your money, it goes with you when you change jobs. This controls the demand side.
4. You are in charge of your Health Savings Account funds, making you and your doctor the decision makers, not some third-party. Spending your own money also means that you will/should ask about the cost of health care expenditures, which will bring marketplace competition to the world of health care. This is a demand control mechanism.
5. You decide whether to spend from the account for your medical expenses and how much to spend, or whether to spend out-of-pocket and to save the HSA money for the future. This controls the demand side.
6. You decide which company will hold the account, and what type of investments you make with your account. Any investment allowed for IRAs is allowed for HSAs
7. IRS Publication 502 provides a list of allowable expenditures from your Health Savings Account. This controls the demand side.
1. You must have an HSA qualified high deductible health insurance plan. This is a demand control mechanism.
2. A HSA qualified high deductible health plan has the following characteristics:
i) a minimum deductible* of $1,000 for self-only coverage (2005);
ii) a minimum deductible* of $2,000 for family coverage (2005);
iii) a maximum out-of-pocket limit* (including deductibles and co-pays) of $5,100 for self-only coverage, and $10,200 for family coverage (2005);
iv) preventive care can have first dollar coverage;
v) prescription drugs taken to prevent the onset of a condition for which a person has developed risk factors for can be considered preventive care, like cholesterol-lowering medication;
vi) preventive care examples include: periodic health evaluations like annual physicals, screening services like mammograms, routine prenatal and well-child care, child and adult immunizations, tobacco cessation programs, and obesity weight loss programs;
vii) a general rule of thumb for what is or is not preventive care is the care does not include any service or benefit which treats an existing illness or condition;
viii) co-pays are allowed to apply to preventive care;
ix) higher out-of-pocket (co-pays and co-insurance) is allowed for out-of-network care;
x) until January 1, 2006, you can have an HSA qualified plan that pays for prescription drugs below the deductible, as long as the prescription drug benefit is a separate plan or rider; and,
xi) after January 1, 2006, prescription drug coverage before the deductible is met is not allowed. These are all demand control mechanism.
3. You cannot be covered by any other health insurance that reimburses you for health expenses you incur, unless it is another HSA qualified high deductible health plan. For example, if a family has all members covered under two HSA qualified high deductible health plans, or some family members on one plan and the other family members under another HSA qualified high deductible health plan, the maximum annual contribution to the account remains in force. Just
because you have coverage under two HSA qualified high deductible ...