HSAs are fairly new, and the rules governing them have undergone significant revision for 2007.  Any who already has an HSA or is considering should become familiar with the new rules.  Read on!

A lot of people are somewhat put off by Health Savings Accounts because they don’t understand them.  The reality is, however, that the health insurance aspect of an HSA is much simpler than a traditional, PPO plan which offers co-pays for doctor visits and first-dollar coverage for prescription drugs.  Virtually all of these plans have much higher co-insurance amounts, (meaning that you will pay an out-of-pocket amount equivalent or greater to an HSA plan in the event of a major claim) and will cost policy holders considerably more in premium from year to year.  HSAs also have the added benefit of including only one Deductible for the entire family.  A family of four covered under one HSA with a $10,000 deductible will usually have considerably less overall risk than a similar family with a traditional plan with a $2,500 deductible.  Of course there are also the legendary tax benefits of the HSA as well which nothing, not even IRAs can match.  It is for this reason that many financial planners in the know recommend maximizing the HSA before ever putting one cent in to the HSA.

The reason the health insurance side of HSAs is simple is because the deductible must be met before coverage begins.  Simple, huh?  Until that time, money spent paying for doctor’s visits and prescription drugs goes against the deductible, unlike traditional co-pay style plans.  Some HSA plans do offer preventative benefits however, so keep that in mind when making comparisons.

But there is another side to HSAs involving money in a bank account, and this is a little more complicated, but nothing that can’t be understood fairly quickly by most people of at least average intelligence.  Besides, because the benefits are so huge, they are worth knowing about.  The scope of this piece is to describe the major HSA changes that have occurred in 2007.  To learn more general information about HSAs, follow this link.  Now, on to the 2007 changes:

·        Unlike in previous years when the contribution amount was indexed to the deductible on the plan, in 2007, one is allowed to make the maximum contribution regardless of the deductible.  For single individuals, this is $2,850, and for couples and families, the amount is $5,650.  The one proviso to both of these amounts is that there is what’s called a “catch up” provision for individuals who are 55 years of age or older.  This has existed in previous years, but the amount is set to increase by $100 every year until it reaches a maximum of $1,000 (unless the law changes again).  The reason for this provision is to allow people who are nearer to retirement to adequately fund their HSAs.  It is a little unfair, however, since someone who is 32 will be able to salt away a much greater amount in to an HSA than someone who is 62 and allowed to make a couple of catch up contributions.  As the 62 approaches retirement, the HSA will especially attractive since one is allowed to pay Medicare premiums with HSA funds and receive a full write-off.  The catch-up amount for 2007 is $800 for each individual.  For 2008, it should be $900.

·        In prior years, the maximum allowable contribution could only be made in January.  For each month after this starting point, 1/12^th of he maximum amount could not be contributed so that if one opened an HSA in February, the total allowable amount would only be 11/12ths of January’s total allowable amount, and so on through the calendar year.  In 2007, the total allowable amount can be contributed at any time, no matter when the policy holder adopted an HSA.  The stipulation is that a tax penalty might be due if the total allowable amount was contributed, and then the HSA was terminated before 12 months had passed.

·        A one-time roll over from an IRA is allowed in 2007 up to the maximum allowable amount.  The one stipulation, again, is that the policy must be in effect for 12 months after the roll over to avoid tax penalties.

·        An individual with an FSA does not have to wait until the following month after the grace period to establish an HSA if there is no balance on the FSA at the end of the plan year, or if the balance is transferred to the HSA.

·        Employers can make a one-time contribution from either an HRA or an FSA so long as the transfer does not exceed the lesser of the balance of the HRA or FSA as of the date of distribution.  The amount contributed does not affect the total amount allowable for the particular calendar year.

·        The Treasury Department must publish the Cost of Living Adjustment (COLA) by June 1^st every year instead being allowed to wait until between October and November.

·        Employers have more flexibility in making higher contribution amounts to non-highly compensated employees within the same category of coverage.