An HSA Refresher Course
HSAs are individually owned health reimbursement accounts that allow untaxed dollars to fund the account. Interest or dividends accumulate tax-free; and payment of qualified medical expenses had no additional tax consequences.
Individuals who make contributions to an HSA must be covered by a qualified, high-deductible health plan (HDHP). Account holders may not be covered by any other insurance plan that is not an HDHP or that covers benefits provided by the HDHP. However, the account holder may obtain "permitted insurance" or "permitted coverage" products, such as policies that provide dental, vision, accident, disability, and long-term care benefits. THE HDHP may also provide "preventive care" that is below the minimum deductible amount or without a deductible.
Preventative Care
The IRS recently determined that preventative care is additional coverage that can be provided without jeopardizing the "no other insurance" rule for HSAs, such as:
- Periodic health evaluations, including tests and diagnostic procedures
- Routine prenatal and well-child care
- Child and adult immunizations
- Tobacco-cessation programs
- Obesity weight-loss programs
- Screening services
Prescription Drug Coverage
Can an HSA participant obtain an HDHP and still get prescription drugs without paying full price? NO. In one IRS Revenue Ruling, the Service reiterates the "no other insurance" rule outlined in the original HSA statute.
The IRS provides this example...an individual HDHP doesn't cover prescription drugs. However, the individual is covered by a prescription drug plan that is not subject to the HDHP deductible and which allows for a co-payment on prescriptions. In this case, a plan that provides benefits for prescription drug benefit is not in the list of permitted insurance or permitted coverage benefits.
Transition Relief
Since the HSA legislation was enacted, there's been a shortage of HDHPs and trustees or custodians to initiate accounts because many HDHps either contain co-payment arrangements for prescription drug coverage or provider a rider for prescriptions (which would disqualify the HDHP form being an eligible product).
To get around this problem, the IRS determined that HSA account holders, who would otherwise qualify, except for such drug benefits, have until January 1, 2006 to obtain coverage.
What about the shortage of HSA trustees or custodians? The Internal Revenue Code clearly states that medical expenses may only be paid by an HSA if they are incurred after the HSA is established. The IRS realized that banking institutions may not have been prepared for this new type of account thus making it impossible for otherwise eligible individuals to begin paying for medical expenses with tax-free dollars. So the IRS decided that any HSA established before April 15, 2005 may pay eligible medical expenses that were incurred after being covered by the HDHP, but before the HSA was established.
HSAs, HFSAs, & HRAs. Do-able?
The latest set of IRS guidelines on HSAs deals with the issue of "other" insurance...specifically, health coverage provided through a Health FSA or an HRA. The Service uses five scenarios to help unravel the complexities of combining these benefits. Without getting into too much detail here, suffice it to say that it is possible to combine these benefits - with considerable planning.
