Comparison of Health Savings Accounts (HSAs) , Medical Savings

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Comparison of Health Savings Accounts (HSAs) , Medical Savings Powered By Docstoc
					                                   National Association of Health Underwriters
                  Comparison of Health Savings Accounts (HSAs), Medical Savings Accounts (MSAs), Flexible
                         Savings Accounts (FSAs) and Health Reimbursement Arrangements (HRAs)


                              Health Savings             Medical Savings         Health                  Flexible Savings Account
                              Account (HSA)              Account (MSA)           Reimbursement           (FSA)
                                                                                 Arrangement
                                                                                 (HRA)
Account Overview              Tax-exempt trust or        A tax-exempt trust      An employer funded      A cafeteria plan authorized
                              custodial account          or custodial            account used to         under Section 125 of the
                              created to pay for the     account with a          reimburse employees     Internal Revenue Code. FSAs
                              qualified medical          financial institution   for qualified medical   can be created to reimburse for
                              expenses of the account    in which account        care expenses.          qualified medical expenses,
                              holder and his/her         holders can save                                health insurance premiums for
                              spouse or dependents.      funds to use                                    premium-only accounts, or
                                                         exclusively for                                 dependent care expenses.
                                                         future qualified
                                                         medical expenses.
                                                         1

Funding                       Individual and/or an       Employer or             Employer-only (self-    Typically funded by an
                              employer.                  employee (not           employed individuals    employee.
                                                         both) or self-          are precluded).
                                                         employed
                                                         individuals.
Eligibility                   Individuals and families   An employee or          An employee whose       An employee whose employer
                              covered by a qualified     the spouse of an        employer offers an      offers an FSA option.
                              high-deductible health     employee of a           HRA.                    Employees may also create a
                              insurance plan.            small employer2                                 Dependent Care Account for
                                                         covered by an                                   qualifying dependents.
                                                         individual or
                                                         family high-
                                                         deductible health
                                                         insurance plan.
                                                         Self-employed
                                                         individuals or a
                                                         spouse of a self-
                                                         employed
                                                         individual who
                                                         maintains an
                                                         individual or
                                                         family high-
                                                         deductible health

              1
                Medical Savings Accounts were authorized as a demonstration project in 1996 under the Health Insurance
              Portability and Accountability Act (HIPAA). Provisions expired December 31, 2003 and were not
              reauthorized. Existing MSAs may continue or be transferred into a Health Savings Account but no new
              MSAs can be authorized.
              2
                Small employer is defined as an employer with 50 or fewer employees.
                                                     insurance plan.
Health Plan               Qualified high-            For 2003, the high-   No corresponding         No corresponding health plan
Requirements              deductible health          deductible health     health plan              requirements.
                          insurance plan with a      plan requirements     requirements.
                          minimum of a $1,000        for individual
                          annual deductible for an   deductibles must
                          individual and $2,000      be between $1,700
                          for families. Maximum      and $2,500 and
                          out-of-pocket limits,      between $3,350
                          including the              and $5,050 for
                          deductible, are $5,000     families.
                          for an individual and      Maximum out-of-
                          $10,000 for a family.      pocket expenses
                          The HDHP may               are limited to
                          provide first-dollar       $3,350 for
                          coverage for preventive    individuals and
                          care.3                     $6,150 for
                                                     families. HDHP
                                                     may provide first-
                                                     dollar coverage for
                                                     preventive care.
Contributions             Account holders or an      Employees or          Only an employer         An employee, employer or
                          employer or both may       employers may         may contribute to an     both may contribute to an
                          contribute to an HSA.      contribute to an      HRA.                     FSA.
                          A maximum of up to         MSA but not both      There are no limits to   There are no limits to
                          100% of the deductible     in the same year.     the amount an            contributions for an FSA
                          amount of the              Up to 75% of the      employer may             however, employers typically
                          corresponding HDHP         amount of the         contribute.              set a limit.4
                          up to $2,600 for an        annual HDHP
                          individual and $5,150      deductible for
                          for a family account       family coverage
                          may be contributed for     and 65% of the
                          2004.                      deductible for an
                                                     individual may be
                          Once an individual         contributed.
                          turns 65, contributions    Contributions are
                          are no longer permitted    limited to the
                          however; funds may         amount of earned
                          continue to be             income for the year
                          withdrawn from             from an employer
                          existing accounts.         or for a self-
                                                     employed
                                                     individual, the net
                                                     self-employed
                                                     annual income.
Qualified Medical         Unreimbursed qualified     Same requirements     Unreimbursed             Same requirements as HSAs.
Expenses                  medical expenses as        as HSAs.              qualified medical
                          defined in Section 213                           expenses as defined
                          (d) of the Internal                              in Section 213 (d) of
                          Revenue Code, except                             the Internal Revenue
                          (in general) for health                          Code, including

          3
            For Preferred Provider Organizations (PPOs), the maximum out-of-pocket expenses refer to in-network
          services only.
          4
            The maximum annual contribution for Dependent Care Accounts is $5,000 for individuals with
          dependents or for individuals filing taxes jointly.
                              insurance premiums:                               health insurance
                              e.g., amounts paid for                            premiums.
                              doctors’ fees,
                              prescription drugs, and
                              medically necessary
                              services not paid for by
                              insurance (including
                              many over-the-counter
                              medicines).
                              Funds generally may
                              not be used to pay
                              health insurance
                              premiums, though
                              exceptions exist.
Carryover                     HSA funds may be             Same requirements    Unused funds in an        Funds from an FSA may not
                              carried over indefinitely    as HSAs. Unspent     HRA may be carried        carryover to the following
                              throughout an account        funds currently in   over but are subject to   year and leftover balances are
                              holder’s lifetime. Upon      an MSA may be        limitations set by an     forfeited by the employee.
                              death, an account may        rolled over into a   employer.
                              be passed on to a            HSA.
                              surviving spouse with
                              out federal tax liability.
Portability                   Employees may take           Same requirements    HRA funds may be          Funds from an FSA are not
                              accounts with them           as HSAs.             portable but the          portable and employees forfeit
                              when leaving or                                   decision is at the        unused balances when leaving
                              changing jobs.                                    discretion of the         or changing jobs.
                                                                                employer.
Tax Status                    Employee contributions       Same requirements    Employer                  Employees are not subject to
                              are tax deductible and       as HSAs.             contributions are         federal, Social Security, or in
                              employer contributions                            generally excludable      most states, state taxes on
                              are excludable from                               from an employee’s        contributions to an FSA.
                              gross income and not                              gross income.5            Employers are not subject to
                              subject to employment                                                       FICA or unemployment taxes
                              taxes.                                                                      on FSA contributions.
Withdrawals                   Funds not used to pay        Funds not used to    Withdrawals for non-      Withdrawals for non-medical
                              for qualified medical        pay for qualified    medical expenses are      expenses are not permitted
                              expenses may be              medical expenses     not permitted.
                              withdrawn but are            may be withdrawn
                              subject to an additional     but are subject to
                              10% tax penalty except       an additional 15%
                              when an individual is        tax penalty except
                              65 or older, disabled or     when an individual
                              has died during the          is 65 or older,
                              year.                        disabled or has
                                                           died during the
                                                           year.
Interest                      Interest accrues without     Same requirements    No requirement exists     Interest does not accrue for
                              a tax penalty.               as HSAs.             however; employers        FSA funds.
                                                                                have discretion to
                                                                                credit interest to HRA
                                                                                accounts.
Health Insurance              HSA funds may be             MSA funds may be     Generally, funds from     A separate premium only FSA
              5
               In an arrangement where an employer distributes unused HRA funds at termination either as a death
              benefit or as part of a severance arrangement, the funds will not qualify. Employers receive expense
              deductions for payments.
Premium Payment              used to pay health               used to pay health         an HRA can be used            may be created to pay an
                             insurance premiums in            insurance                  to pay for health             employee’s contribution
                             the following                    premiums in the            insurance premiums            toward the monthly cost of
                             situations:                      following                  under:                        health insurance premiums.
                                  • While an                  situations:                     • The                    Under a salary reduction
                                      individual                   • While an                     employee’s           arrangement, the employee
                                      receives                         individual                 health plan          agrees to contribute a portion
                                      unemployment                     receives               • A spouse’s             of salary on a pre-tax basis to
                                      insurance                        unemploy                   health plan          pay for qualified benefits.
                                  • While an                           ment                   • An
                                      individual                       insurance                  employee’s           Long-term care insurance is
                                      receives                     • While an                     retiree health       specifically excluded as a
                                      COBRA                            individual                 plan                 qualified benefit under the IRS
                                      continuation                     receives               • COBRA                  code
                                      benefits.                        COBRA                      continuation
                                  • When an                            continuati                 coverage
                                      individual                       on
                                      reaches age 65                   benefits.         Individuals may use
                                      for any health                                     HRA funds to pay for
                                      insurance               Funds from an              qualified long-term
                                      except                  MSA may be used            care insurance
                                      Medicare                to pay for qualified       premiums.
                                      supplement              long-term care
                                      policies.               insurance
                                                              premiums.
                             Funds from an HSA
                             may be used to pay for
                             qualified long-term
                             care insurance
                             premiums


         PLEASE NOTE: The information presented in this analysis is the exclusive property of the National Association of Health
         Underwriters (NAHU). It was prepared as an informational resource for NAHU members, state and federal policymakers and other
         interested parties. It is not to be duplicated, copied, or taken out of context. Any omission or the inclusion of incorrect data is
         unintentional. If you have any questions about the information presented in this document, please contact John Greene, NAHU
         Director of Federal Affairs at jgreene@nahu.org or (703) 276-3807.