The new year brings new limits on maximum HSA contributions and minimum deductibles for qualified high-deductible health plans (HDHPs).
In addition, HSA legislation that President Bush signed has a positive impact for all HSAs. The highlights of this legislation include:
HSA distributions are tax- free if they are used to pay for qualified medical expenses, such as:
Distributions made for any other purpose are subject to income tax and a 10% penalty. The 10% penalty is waived in the case of death or disability. The 10% penalty is also waived for distributions made by individuals age 65 and older.
Under guidelines implemented in the Patient Protection and Affordable Care Act (PPACA ), over-the-counter drugs may only be reimbursed if they have a prescription. If a policyholder uses an HSA to pay for items or services that aren't qualified medical expenses, the tax penalty is 20 percent of the HSA distribution.
While the Patient Protection and Affordable Care Act of 2010 (PPACA ) allows parents to add their dependent children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that a person could have their 25-year-old child covered on their HSA -qualified high-deductible health plan, but not be eligible to use their HSA funds to pay for medical bills for that 25-year-old. Reimbursements issued in violation of this rule will be taxed and could be subject to the 20% HSA penalty for an early withdrawal. For all HSA plans, group or individual, the IRS definition of a dependent is used when determining whether a dependent qualifies and how benefits are administered for dependents. The account holder must be able to "claim" the child/relative as a dependent on their tax return, and if they cannot, they are not allowed to spend HSA dollars on services provided to that child/relative. The IRS defines a qualifying child dependent as follows:
We at CDA Insurance encourage HSA account holders to seek advice from their financial advisor or tax consultant if they have questions.
Upon death, HSA ownership may transfer to the spouse on a tax-free basis.
January 1, 2014.
10 Essential Benefits
Healthcare reform says all health plans must include ten essential benefits. The basic benefits include:
- Outpatient Care - the kind you get without being admitted to a hospital
- Emergency Services - for issues that could lead to death or disable you if you do not treat them.
- Inpatient Care - covers room and board, tests, drugs, and care from doctors and nurses while admitted, which may include organ and tissue transplants, and hospice and respite care.
- Maternity and Newborn Care - care before and after your baby is born
- Mental Health and Substance Use Disorder Services - this includes behavioral health treatment, counseling, and psychotherapy.
- Prescription Drugs - covers retail, mail order, and specialty drugs.
- Rehabilitative and Habilitative Services - services and devices to help you recover if you are injured, or have a disability or chronic condition. This includes physical and occupational therapy, speech-language pathology, psychiatric rehabilitation, and more.
- Laboratory Services - covers lab tests, X-ray services, and pathology, and imaging and diagnostics such as MRI, CT scan, and PET scan.
- Preventive and Wellness Services - including mammograms, colonoscopies, vaccines. Covered in full if you use in-network providers for care such as routine physicals, screening, and immunizations. Disease management coordinates care for diabetes, asthma, and other conditions.
- Pediatric Services - including dental care (preventive, basic, major) and vision care (eye exam, lenses, and eyewear).