The Basics Of Health Savings Accounts

FAQ On HSAs: The Basics Of Health Savings Accounts

TOPICS: HEALTH COSTS, INSURANCE, MARKETPLACE

By SHEFALI S. KULKARNI

KHN Staff Writer

NOV 04, 2011

Note: This story was corrected Nov. 9, 2011 to clarify the tax treatment of HSA funds used for general expenses by people older than age 65.

It's open enrollment season for many employer-sponsored health plans. Employees look for the most cost-effective option that promises high quality health care, and employers attempt to control their costs. Meanwhile, those who seek insurance in the individual market are simply looking for affordable health coverage.

Health savings accounts, coupled with high deductible health plans, increasingly are on the list of choices. The insurance industry trade group America's Health Insurance Plans reports that the number of people with these plans "rose to more than 11.4 million in January 2011, up from 10 million in January 2010."

FAQs

See our collection of FAQs on health care terminology

• FAQs: Explaining Health Care's Hot Topics

Still, HSAs can be confusing, and, many people wonder if this approach to health insurance is good for them. Here are some answers to frequently asked questions:

What is a health savings account?

HSAs have two basic elements:

• A tax-preferred savings account where money is set aside by the consumer (employers can also contribute) to pay for medical expenses and prescription drugs.
• A high-deductible health insurance plan. In 2012, that deductible will be at least $1,200 for an individual and $2,400 for a family and as high as $6,050 and $12,100, respectively, according to the Treasury Department.

Any adult with a high-deductible health plan and no other form of health care coverage can establish one of these accounts.

How can consumers benefit from HSAs?

Consumers who participate in HSAs receive certain tax benefits. For instance, individual contributions are tax deductible, and employer contributions also are not counted as taxable income. Account withdrawals, when used to pay for qualified medical expenses, also are not taxed.

Meanwhile, the money inside the savings account belongs to the consumer and funds left over at the end of the year are rolled over to the next year. If he or she changes jobs, the HSA stays with that individual. And though not all high deductible plans work the same way, by law plans have the option to cover basic preventive care, such as vaccinations and annual physicals, even if the deductible has not been met.

When participants turn 65, any remaining funds can be used -- without tax penalities -- for general retirement expenses, but are subject to income tax.

What are the benefits for employers?

High-deductible health plans come with lower premiums than more comprehensive coverage, which many employers value as a way to manage the costs of employee benefits. "[They] are essentially the employers' answer to cost control," said Deborah Chollet, a senior fellow at Mathematica Policy Research Center in Washington.

What are some of the drawbacks?

Health care policy experts say that while HSAs give consumers control over their medical spending, they are problematic for low-income individuals, especially those with chronic conditions who use the health care system frequently.

As financially friendly as the HSA-high-dedutible plan combination may appear, Paul Fronstin, who directs the health research and education program of the Employee Benefit Research Institute in Washington, said there's a catch: They have a "straitjacket design" in which consumers are responsible for paying the full-dollar amount of their medical expenses until they meet their deductible. This can be particularly burdensome for people with chronic conditions, like diabetes, that requires ongoing care.

The IRS establishes financial and medical limits on this type of health care plan. There is a limit on the amount of money consumers can contribute to their savings accounts: In 2012, the maximum amount is $3,100 for an individual and $6,250 for a family.

The IRS also determines what medical expenses qualify. Recently, the IRS dropped over-the-counter medications from its list.

One of the biggest concerns expressed by some health policy experts is that this type of coverage could discourage certain types of medical care. Since patients will have to pay for all their medical care out-of-pocket, they may avoid the doctor's office. "The healthy employee tends to like high-deductible plans with low premium contributions," Chollet said, adding that consumers "tend to be young, healthy males who avoid the health care system" and only go to the doctor when it's necessary.

Why are HSAs growing in popularity?

HSA advocates say this approach is an ideal model of consumer-directed health care, because consumers will have "skin in the game" and become informed shoppers when it comes to their medical needs. A recent RAND study notes that "HSAs create a strong financial incentive for the employee to manage health care costs carefully, because the account balance is owned by the employee."

Because the concept of HSAs tracks so closely with Republican principles like consumer-directed care and market-driven reforms, they are a hot topic among this year's GOP presidential candidates. Most of the major candidates have expressed support for tax credits to encourage the use of HSAs and allow consumers more flexibility to contribute to these accounts.

But their market share will ultimately be determined by consumers.

"Every time a leading Republican refers to HSAs as an attractive means to buy health insurance, it's as good for the product as buying an ad in the national media," said Robert Laszewski, president of Health Policy and Strategy Associates, a Washington-based consulting firm. "But in the end, consumers carefully compare health plans … and select the one that gives them the best value."

© 2011 Henry J. Kaiser Family Foundation. All rights reserved.

Canadian Health Care is NOT single payer

there seems to be an inconvenient truth that exposes a lie in the gazillion comments being made to further health care reform

it seems there is a thriving private insurance industry in Canada

from:
http://www.marketwatch.com/story/balyasny-bets-against-healhcare-reform-2009-08-04#comment2591443

"While the health-care system in Canada ensures that virtually everyone living here has access to medical services in any part of the country, it doesn't cover everything. That's where private, or extended, health insurance comes in – it is meant to pick up where your government plan ends. Private health insurance is not the same as emergency health – or travel medical – insurance that you may consider purchasing when you travel outside Canada. Rather, it covers the day-to-day surgeries and treatments that can add up to big bills."

and from
http://www.insurance-canada.ca/health-products/health-dental/health-dental.php

"Directory of Health and Dental Insurance Providers

A certain amount of health and dental expense will be incurred every year by individuals and families. However, health and dental emergencies can prove quite expensive and personal or family health and/or dental insurance can be a big help in reducing the impact of unexpected costs.

For this reason many people not covered by an employer or group plan will consider their own health and dental insurance."

and, last but not least:
http://www.insurance-canada.ca/health-products/health-quotes/health-quotes.php

"Directory of Online Health Quotes Providers

When you decide to buy health insurance, the sales organization - broker, agent, company - must be licensed to do so in your province. Providers will make product information, coverages, pricing and applications available in numerous ways -- in local offices, through the mail, via telephone and/or on the web over the Internet."

Congress exempt from the Public option?

any plan that allows Congress to exclude themselves should be refused by the people

If it’s not good enough for Congress to take it as their own coverage, it’s not good enough for the people

you should all wonder why Congress does not take it for their own coverage, just like they do not take Medicare

if they have their way, the elite government worker will have a super plan, and the masses will be stuck with something doctors already do not like - Medicare

How can anyone expect Congress to fix and maintain a program they do not live by

they have no skin in the game, and so really do not care how poorly or well it works, compared to if they actually lived by the laws of the land

after all - they are the Government, there to help you

right!

with friends like that - who needs more enemies.

Health Care Reform - why so expansive?

Can someone tell us why Congress is making this issue so expensive and complicated?

Look at how the cost has come down and the quality has gone up on vision correction surgery, with no federal or state intervention
Only basic regulations are in place, and tort laws were not reformed
think about that example, while you read this

Part of the problem is that Congress wants to take 500 - 1500 pages to establish some simple, 1 to 2 page issues.
They seem to like 1500 pages, because they can then slide other things into a bill, and leave parts unwritten, like with Cap and Trade

what would change the whole system in a gradual manner, and not add tons more debt would be the following:

- eliminate the pre-existing clause for health issues, like has been done in multiple states already
now people can get coverage - no matter what the issue

- allow reduced premiums for healthy lifestyles, so smoking and unhealthy lifestyles only penalize the ones who have them, such as the industry already does
If you want to be a chain smoker, and gain 300 lbs - go for it - the only one you hurt is you

- mandate coverage on all citizens, using a basic catastrophic plan as a minimum, such as the existing HSA approved plan structure, which are high deductible and no cap plans
now no one goes bankrupt because they have no coverage, or capped coverage

- phase out employer health plans, since the overall cost per person is higher than individual plans, and layoffs and terminations cause so many to loose coverage going from employer to individual coverage
Now no one looses insurance because of job issues - it's your coverage, so you pay for it
mandate Disability riders in the policy if need be - so a permanently injured person has coverage for the 36 months it takes to go on SSI
Employers are free to compete on the global economy, employees do not have salary caps that automatically factor in health care costs - even when they decline coverage

- make transference of cost illegal, so that private plans are not forced to pay the non-reimbursed costs that Medicare and Medicate do not cover: I should not have to pay for the federal government's refusal to pay.
If Medicare and Medicaid's payment schedule is not enough, providers can choose not to participate, which is the free market system

- set up a fail safe program, that allows people to move to Medicare and Medicaid when legitimate changes in income happen.

- keep the existing COBRA rules in place until the laws take effect

- Keep SCHIP in place to cover lower income children,

- keep means testing, so only people with a real need qualify for assistance


those simple changes will eliminate all but about 16 million uninsured,
those 16 million are here without legal documentation, and that is a different issue to resolve first

net cost to the tax payer - almost nothing

the states can continue to manage plans and benefits, but some federal intervention will be needed to keep things like hair transplants and fertility treatments for 60 year olds of of the mandated coverage list, so that costs stay in line

If you think this is crazy - and it can't be this simple

remember what happened when it really is a free market - like vision correction surgery, like cosmetic surgery, with no federal or state intervention

Medical Problems Could Include Identity Theft

The article published in the NY times says it all.

The last paragraph is the consumer's punch line.

So - the new electronic age in medicine may cut some costs, but please check your credit reports regularly.

Remember - those medical records contain birth date, ss#, address, full name, health and insurance data. These are all anyone needs to take your medical identity.

from
http://www.nytimes.com/2009/06/13/health/13patient.html

Medical Problems Could Include Identity Theft

By WALECIA KONRAD

Published: June 12, 2009

Brandon Sharp, a 37-year-old manager at an oil and gas company in Houston, has never had any real health problems and, luckily, he has never stepped foot in an emergency room. So imagine his surprise a few years ago when he learned he owed thousands of dollars worth of emergency-service medical bills.

Brandon Sharp, of Spring, Tex., learned he was a victim of medical I.D. theft only when he applied for a mortgage and discovered debts on his credit report for emergency room visits at places in the country he had never been.

Mr. Sharp, as it turned out, was a victim of a fast-growing crime known as medical identity theft.

At the time, Mr. Sharp was about to get married and buy his first home. Before applying for a mortgage he requested a copy of his credit report. That is when he found he had several collection notices under his name for emergency room visits throughout the country.

“There was even a $19,000 bill for a Life Flight air ambulance service in some remote location I’d never heard of,” said Mr. Sharp, who made this unhappy discovery in 2003. “I had emergency room bills from places like Bowling Green, Kan., where I’ve never even visited. I’m still cleaning up the mess.”

The last time federal data on the crime was collected, for a 2007 report, more than 250,000 Americans a year were victims of medical identity theft. That number has almost certainly increased since then, because of the increased use of electronic medical records systems built without extensive safeguards, said Pam Dixon, executive director of the nonprofit World Privacy Forum and author of a report on medical identity theft.

And uncountable, Ms. Dixon said, are the people who do not yet know they are victims. They may not know that their medical information has been tampered with for months or even years until, as in Mr. Sharp’s case, it shows up in collections on a credit report.

Medical identity theft takes many guises. In Mr. Sharp’s case, someone got hold of his name and Social Security number and used them to receive emergency medical services, which many hospitals are obliged to provide whether or not a person has insurance. Mr. Sharp still does not know whether he fell victim to one calamitous perp who ended up in several emergency rooms or a ring of accident-prone conspirators.

In another variant of the crime, someone can use stolen insurance information, like the basic member ID and group policy number found on insurance cards, to impersonate you — and receive everything from a routine physical to major surgery under your coverage. This is surprisingly easy to do, because many doctors and hospitals do not ask for identification beyond insurance information.

Even more common, however, are cases where medical information is stolen by insiders at a medical office. Thieves download vital personal insurance data and related information from the operation’s computerized medical records, then sell it on the black market or use it themselves to make fraudulent billing claims.

In a widely reported case in 2006, a clerk at a Cleveland Clinic branch office in Weston, Fla., downloaded the records of more than 1,100 Medicare patients and gave the information to her cousin, who in turn, made $2.8 million in bogus claims.

When people are not aware their medical identities have been stolen, insurance companies may simply continue to pay the fraudulent claims without the victim’s knowledge. The person might learn of the fraud only when trying to make a legitimate claim, and the insurance company informs them they have reached their lifetime cap on benefits.

Or victims may eventually discover erroneous information in their medical files during a doctor or hospital visit. And that may pose a bigger danger than the financial risks. The medical records may now contain vital information like blood type, allergies, prescription drug use or a history of disease that is just plain wrong. In an emergency, doctors could treat you based on this erroneous information.

And there are none of the consumer protections for medical identity theft victims that exist for traditional identity theft. Under the Fair Credit Reporting Act you can get a free copy of your credit report each year, put a fraud alert on your account and get erroneous charges deleted from your record. If your credit card is stolen and the thief goes on a spending spree, you’re not liable for more than $50 worth of the charges.

With medical identity theft, though, the fraudulent charges can remain unpaid and unresolved for years, permanently damaging your credit rating. Under the federal law known as Hipaa — the Health Insurance Portability and Accountability Act — you are entitled to a copy of your medical records, but you may have to pay a hefty fee for them.

Worse, Hipaa privacy rules can actually work against you. Once your medical information is intermingled with someone else’s, you may have trouble accessing your files. Privacy laws dictate that the thief’s medical information now contained in your records must be kept confidential, too.

Even when you are able to correct a record, say in your doctor’s office, the erroneous information may have been passed on to dozens of other health care providers and insurers. Victims must track down and resolve these errors largely on a case-by-case basis, Ms. Dixon says.

Medical providers contend that they are taking precautions against identity theft. At Cleveland Clinic, for example, security personnel routinely audit electronic medical record systems and all records are password-protected. Many Blue Cross Blue Shield insurers use software to screen for spikes in claims from providers that look suspicious. They also work with providers on encrypting medical files and carrying out data access restrictions, said Calvin Sneed, senior antifraud consultant at the Blue Cross and Blue Shield Association.

And some medical centers and doctors’ offices now require patients to show photo ID and attach photos to patient charts.

But privacy advocates worry that these steps do not go nearly far enough, especially in light of President Obama’s plans to spend $20 billion to increase the use of electronic medical records nationwide as part of the stimulus package. “Without aggressive safeguards, we could be building an infrastructure for massive medical fraud,” said Ms. Dixon.

points to consider - raised by a very credible source

Massachusetts is living under this type of plan now - and yet Kennedy went to the Carolina's to get care.

Printed in The Wall Street Journal, page A15

Dissecting the Kennedy Health Bill

No, you won't be able to keep your insurance if you like it.

By BETSY MCCAUGHEY

Ms. McCaughey is chairman of the Committee to Reduce Infection Deaths and a former lieutenant governor of New York state.

Last September Sen. Barack Obama promised that under his health-care proposal "you'll be able to get the same kind of coverage that members of Congress give themselves." On Monday, President Obama repeated that promise in a speech to the American Medical Association. It's not true.

The president is barnstorming the nation, urging swift approval of legislation that is taking shape in Congress. This legislation -- the Affordable Health Choices Act that's being drafted by Sen. Edward Kennedy's staff and the Health, Education, Labor and Pensions Committee -- will push Americans into stingy insurance plans with tight, HMO-style controls. It specifically exempts members of Congress (along with federal employees; the exemptions are in section 3116).

Members of Congress "enjoy the widest selection of health plans in the country," according to the U.S. Office of Personnel Management. They "can choose from among consumer-driven and high deductible plans that offer catastrophic risk protection with higher deductibles, health saving/reimbursable accounts and lower premiums, or fee-for-service (FFS) plans, and their preferred provider organizations (PPO), or health maintenance organizations (HMO)." These choices would be nice for all of us, but they're not in the offing. Instead, if you don't enroll in a "qualified" health plan and submit proof of enrollment to the federal government, you'll be tracked down and fined (sections 3101 and 6055).

For a health plan to count as "qualified," it has to meet all the restrictions listed in the legislation and whatever criteria the Secretary of Health and Human Services imposes after the bill becomes law. You may think you're in a "qualified" plan, but the language suggests that only plans with managed-care controls such as the "medical home" will meet the definition (sections 3101 and 2707).

"Medical home" is this decade's version of HMO-style insurance, according to the Congressional Budget Office, with a primary-care provider to manage your access to costly services such as visits to specialists and diagnostic tests. Medical home providers in "qualified" plans, states the Kennedy bill, will have a "payment structure" based on "incentives" rather than payments for each doctor visit or procedure (section 3101).

These requirements are reminiscent of the unpopular controls HMOs imposed two decades ago that caused public outrage and led to state laws reining in abuses. In December 2008, a Congressional Budget Office report evaluating early drafts of major federal health insurance proposals noted that "medical homes" were likely to resemble the HMO gatekeepers of 20 years ago if cost control is a priority.

That report specifically referred to a payment incentive called the "withhold." When HMOs became dominant in the early 1990s, they would withhold 10% or more of physicians' fees until the end of the year and give it back only to the physicians who met targets for limiting how many referrals to specialists or diagnostic tests their patients used.

The targets were so stringent that, if they were exceeded, what a doctor prescribed for you came out of your doctor's own pocket at the end of the year. This set up a conflict of interest between you and your doctor.

Mr. Obama tried to put a positive spin on such cost controls in his June 13 weekly radio address. He said "if doctors have incentives to provide the best care, instead of more care, we can help Americans avoid unnecessary hospital stays, treatments and tests that drive up costs." Fair enough -- if you want your doctor paid to police your care and to be financially penalized for that extra test or referral you get.

It is reasonable to require that people who accept a government subsidy for health insurance tolerate cost controls to protect taxpayers. But according to the terms of the Kennedy bill, you must enroll in a "qualified" plan or face a fine, even if you and your employer are paying the entire cost of the plan you already have (section 161).

The president has promised that if you like your plan you can keep it. Mr. Kennedy's bill says that too. It's doubletalk, as the consequences of nonenrollment make clear. How big a fine will you face? The bill doesn't specify or set a limit. It says the fine will be enough to "accomplish the goal of enhancing participation in qualifying coverage" (section 161).

If legislation similar to the Kennedy bill lands on Mr. Obama's desk, he has an obligation to keep his promises to the American people and veto it. And whatever health-insurance law is passed should apply to members of Congress. If it isn't good enough for them, it shouldn't be imposed on the rest of us.

Ms. McCaughey is chairman of the Committee to Reduce Infection Deaths and a former lieutenant governor of New York state.

Printed in The Wall Street Journal, page A15

Why does a medicine cost so much?

most people are clue less

the American governments regulations on health care providers, pharmacies, health care facilities and ancillary services is so counter productive, that cost containment is impossible

Here is an easy way to prove it to yourself
try to get a common antibiotic like penicillin
add in the cost of the doctor's visit, and the trip to the pharmacy
those simple common meds become a 60.00 investment, if YOU PAY CASH

big pharma and lobbies had nothing to do with it

it was ALL GOVERNMENT REGULATIONS

we let it become so cumbersome in the U.S.

we allowed GOVERNMENT to CONTROL everything

all that record keeping, CYA documentation, meeting of regulations took a 4.00 prescription to a 60.00 total cost

and if you need a "controlled substance" medication - the cost doubles

You want to know why it costs so much

go look in a mirror

Bill to reduce uninsured by 16M carries $1T price tag

As we get closer to the Congressional proposals being made into law, it's the cost that is staggering to grasp, much less to afford

these are numbers for JUST the next 10 years, from the Congressional Budget Office.

Anyone know how we can pay for this?

And am I the only person who thinks these numbers are nuts?

1,000,000,000,000 / 10 years =
100,000,000,000 / year to provide coverage for a net gain of 16,000,000 more people

= $ 6,250 in cost /insured person /per year for adding 16 million into the coverage

(by the way - if you think 1 trillion is correct - coverage for a 52 yo male at the levels planned is close to 1,500 per month, or 18,000 per year )

and that still leaves somewhere around 30 million to go (46 million uninsured - 16 million)

these numbers could go higher, given that coverage will extend to people making up to 500% of the poverty level

which is:

2008 Countable Income Limits
500% FPL

Family Size	Gross Annual Income	Gross Monthly Income
1	52,000	4,335
2	70,000	5,835
3	88,000	7,335
4	106,000	8,835
5	124,000	10,335

Bill to reduce uninsured by 16M carries $1T price tag

By Dan Bowman

Is reducing the number of uninsured people in the United States by 16 million worth $1 trillion over a 10-year time span? That's what the Congressional Budget Office estimates a bill to reform healthcare in the United States will accomplish should it pass as is, according to the Washington Post.

A letter to Sen. Edward Kennedy (D-MA) points out that "based on major provisions" in "an incomplete draft of the bill," 23 million individuals would wind up without insurance--15 million who were formerly covered through employers, and another 8 million covered by "other sources." However, 39 million people overall would become covered through other exchanges, creating a net of 16 million individuals covered.

CBO Director Douglas Elmendorf did write that the $1 trillion price tag could rise, considering the organization did not account for "proposals" offering federal subsidies to individuals making between 150 and 500 percent of the federal poverty level, according to Modern Healthcare. "Taking all of its provisions into account could change our assessment of the proposal's effects on the budget and insurance coverage rates though probably not by substantial amounts relative to the net costs already identified," wrote Elmendorf.

American Indians receiving 'substandard' healthcare

Gee - is this the future?

Why should we presume that the federal system will treat anyone else better?


American Indians receiving 'substandard' healthcare

By Dan Bowman

In a sad, but all too true case of healthcare negligence in the United States, the Associated Press reports that the Indian Health Service System's level of care for it's 2 million patients in 35 states is "grossly substandard" a good portion of the time. Among other reportable statistics, death rates for American Indian infants were found to be 40 percent higher than their white counterparts.

Many qualified American Indians don't apply for services such as Medicare and Medicaid because they don't have access to the sign-up process, says the Associated Press. A lack of federal dollars also is a big reason for the poor health statistics of American Indians; Congress approved a budget of $3.6 billion for the Indian Health Service System for this year, not nearly enough to attract top-tier doctors, or purchase top-of-the-line equipment.

Heck, even inmates in federal prison have it better when it comes to healthcare: 2005 data points out that one-third more is spent, per capita, on the healthcare of felons in federal prison than on healthcare for reservations. While Sen. Byron Dorgan (D-ND) has attempted to bring this issue to light, he has not had any luck getting any legislation passed. Furthermore, a problem of political "clout" exists: Ron His Horse is Thunder, chairman of the Standing Rock tribe, pointed out to the Associated Press that his tribe is "not one congruent voting bloc in any one state or area."

Universal / National health Care and health Care reform are touted as saving money

Universal / National health Care and health Care reform are touted as saving money

why then are these NEW TAXES being researched by the current administration?

"HOW TO PAY FOR IT - Here, of course, is where the "rubber meets the road." It looks like the Senate Finance Committee will take the lead on developing strategies to pay for health care reform. Possibilities include:

* Limiting the income tax exclusion on employer-provided health care coverage.
* Either repealing the itemized deduction for medical expenses or raising the floor from 7.5% of adjusted gross income so fewer taxpayers can claim it.
* Curbing HSAs and FSAs.
* Requiring all state and local government employees to pay the Medicare tax.
* Clamping down on nonprofit hospitals.
* Hiking the tax on alcoholic beverages.
* Imposing a tax on sugar-sweetened beverages.

VAT TAX – The Administration has launched a trial balloon for a new national Value-Added Tax (VAT) to pay for health care. Ezekiel Emanuel, whose book on health care uses a VAT to fund the new government program and brother of White House chief-of-staff Rahm Emanuel, has been hired by the White House budget office to help design the health care plan."