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Treasury
Issues Guidance
Medicare Health Savings
Accounts Start Jan. 1
Dec. 23, 2003 - The Treasury Department
and the Internal Revenue Service yesterday issued guidance regarding the
new and innovative Health Savings Accounts (HSAs). HSAs were created by
the Medicare bill signed by President Bush on December 8th
and are designed to help individuals save for qualified medical and
retiree health expenses on a tax-free basis.
"Starting January 1, 2004, new
innovative Health Savings Accounts will change the way millions can save
to meet their health care needs," said Treasury Secretary John Snow. "We
want Americans to be able to take advantage of HSAs as soon as
possible," stated Treasury Secretary John Snow. "An HSA is a good deal,
and all Americans should consider it. HSAs will help consumers have more
choice in meeting their health care needs, and we are acting today to
clear the way."
Any individual who is covered by a
high-deductible health plan may establish an HSA. Amounts contributed to
an HSA belong to individuals and are completely portable. Every year the
money not spent would stay in the account and gain interest tax-free,
just like an IRA. Unused amounts remain available for later years
(unlike amounts in Flexible Spending Arrangements that are forfeited if
not used by the end of the year). Tax-advantaged contributions can be
made in three ways: the individual and family members can make tax
deductible contributions to the HSA even if the individual does not
itemize deductions, the individuals employer can make contributions
that are not taxed to either the employer or the employee, and employers
with cafeteria plans can allow employees to contribute untaxed salary
through a salary reduction plan. Funds distributed from the HSA are not
taxed if they are used to pay qualifying medical expenses. To encourage
saving for health expenses after retirement, HSA owners between age 55
and 65 are allowed to make additional catch-up contributions ($500 in
2004) to their HSAs.
HSAs are more flexible and are available
to many more individuals than Archer MSAs. The minimum required
deductible of the high-deductible plan is lower, both employees and
employers can contribute, and the maximum contribution is now the full
amount of the deductible. Employees of large companies are now eligible.
Individuals with existing MSAs can either retain them or roll the
amounts over into a new HSA.
Todays guidance (Notice 2004-2)
provides, in a question and answer format, information about what HSAs
are, who can have HSAs, how to establish them and the basic rules for
contributions and withdrawals from HSAs. While many of the rules follow
previous guidance issued for Archer MSAs, they also address new issues
specific to HSAs. In addition to the basic information about HSAs, the
guidance provides the following clarifications:
Employer contributions to employee HSAs
are not subject to FICA taxes.
An HSA is allowed for employees covered
by an employer self-insured medical reimbursement plan with a qualifying
high-deductible.
Like MSAs, trustees or custodians are
not required to determine if withdrawals are used for medical expenses.
Special rules are provided for
determining the deductible for high-deductible family coverage.
Like MSAs, in addition to banks and
insurance companies, persons may be approved as HSA custodians under the
IRA nonbank trustee rules and existing IRA or Archer MSA trustees or
custodians are automatically approved.
While an HSA trustee or custodian that
does not sponsor the high-deductible health plan may request proof or
certification that someone is eligible to contribute to the HSA, it is
not required.
Otherwise eligible individuals without
earnings may contribute to an HSA including self-employed and
unemployed.
Treasury and the IRS intend to issue
additional guidance in the summer of 2004. To that end, todays Notice
requests comments concerning HSAs, including
What kinds of preventive care can be
offered without a deductible in a high-deductible health plan?
What is the relationship of HSAs to
Flexible Spending Arrangements and Health Reimbursement Arrangements?
Are high-deductible plans used in
conjunction with an HSA allowed to impose a lifetime limit on benefits?
Treasury Assistant Secretary for Tax
Policy Pam Olson stated, "We look forward to receiving comments from the
public on the issues that need to be resolved in order to make HSAs a
success."
Separately, the Federal Office of
Personnel Management has already begun a review of HSAs and their role
within the FEHB. OPM will identify opportunities to extend this new
benefit to the 3.1 million members of the Federal team as they make
decisions on how to spend their hard-earned dollars on healthcare.
Related Documents:
Notice 2004-2
Health Savings Accounts
Fact Sheet
OPM Press Release |
