OPPORTUNITY SOCIETY:

Decreasing Healthcare Costs (Bart A. Basi and Roman A. Basi, 7/1/2004, Industrial Distribution)

No, your eyes are not playing tricks on you, the title of this story does indeed say "decreasing." The Medicare bill that was signed into law on December 8, 2003 established a new and innovative insurance program for employers and employees called an "HSA", otherwise known as a Health Savings Account. This revolutionary vehicle will help many employers, large and small, save taxes and save money on health insurance premiums.
What is an HSA?

An HSA is a tax-exempt account that is created for the purpose of paying qualified medical expenses. The HSA can be funded by the employer and/or the employee. To be eligible to create an HSA, you must be an individual who has a high-deductible health plan (HDHP). An HDHP is one in which a single individual has a yearly deductible of no less than $1,000, or if you have family coverage, the deductible can be no less than $2,000. In addition, if you have individual coverage, the out of pocket expenses required to be paid cannot exceed $5,000, and for family coverage, this amount cannot exceed $10,000. [...]

The Benefits of an HSA

1. Employee Benefits

An HSA has many benefits for employees. The first benefit is that 100 percent of the annual deductible for the individual or family can be contributed to an HSA. However, this amount can not exceed $2,600 for an individual, and $5,150 for family coverage. People ages 55 to 64 can make additional contributions to "catch up" in 2004 of $500. This will gradually increase to $1,000 in 2009.

The contribution to the HSA is tax-free to the employee. The employee can take a deduction for any amount he contributes to the HSA. This deduction is an "Above-the-Line" deduction, and therefore directly reduces an employee's taxable income.

An HSA is held in an account for the benefit of the individual, his spouse or children. This account is invested, and any gain on the investment is also tax-free. In addition, if an employee changes jobs, the account goes with him, as the employee is allowed to transfer the entire fund balance to his new job.

Finally, it should not be forgotten that if the deductible increases to $1,000 per person or $2,000 per family, the cost of the health insurance premiums will be less, resulting in cash savings.

2. Employer Benefits

There are also benefits to the employer. An employer is not taxed on the amounts he contributes to the account, and these amounts are also not subject to withholding for income tax, FICA, or FUTA. Therefore, an employer obtains a direct write off for the amounts paid not only for the health insurance premiums, but for the HSA as well.

In addition, most employers will see a reduction in the monthly premiums they pay for their employees due to the increase in deductibles (if the employer does not already have an HDHP).

The reduction in the premiums, and the tax deduction, will help to offset the cost of the employer funding a portion of the HSA, if they so wish to assist their employees with funding the HSA.

The disadvantages of an HSA

1. Disadvantages for Employees

The disadvantages of an HSA are few and far between.

Even besides our obvious cultural superiority, accounts like these and privatized Social Security could save us from the ugly fate of Europe.

Posted by Orrin Judd at July 6, 2004 8:12 PM