HSA

THE CARES ACT REVIEW PART V: Health Provisions

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One of the objectives of the Coronavirus Aid, Relief and Economic Security Act (CARES) is to help people get the care they need with fewer obstacles and less-in-person contact. It adds to the health provisions in a bill passed in March – the Families First Coronavirus Response Act (FFCRA).

The CARES ACT health provisions will be most beneficial to families with High Deductible Health Insurance plans (HDHPs) and health savings accounts (HSAs) or flexible spending accounts (FSAs), which are pre-tax savings accounts for healthcare expenses. However, Medicare Part D participants and anyone who gets a test for COVID-19 will benefit too.

EXPANDED USE OF HSAs
Temporary provision:
-Telehealth services used to be subject a deductible, now they are covered before a patient has met the plan deductible. Usual cost-sharing, such a co-pay, is still allowed. This provision will sunset in December 2020.

Permanent and retroactive to January 1, 2020 provisions:
-It’s now ok to buy over-the-counter medical products, such as OTC drugs and surgical masks, without a prescription and get reimbursed by an HSA. With the prior rules, effective since January 2011, a prescription was necessary for reimbursement.
-Certain menstrual care products such as tampons and pads are now reimbursable medical expenses.

PLANNING TIP: For individuals and families experiencing cash flow issues some of the existing HSA rules can help. For example, there are no time restrictions or deadlines for when you can reimburse yourself from your HSA. You can claim reimbursement for eligible items if you have proof of purchase as far back as when you first opened the account.

PLANNING TIP: While HSA can’t be used to cover your share of employer-provided medical insurance, they can be used by unemployed people to pay premiums on an independent policy or coverage through COBRA.

COVID-19 TESTING WITHOUT COST SHARING
The FFCRA mandates that private insurance companies and Medicare cover COVID-19 testing and a vaccine for free. The CARES Act extends free testing to any services or items provided during a medical visit that results in coronavirus testing. Medical visits can be in-person, a telehealth visit, an urgent care or emergency room visit. This benefit remains in effect only while there is a declared public health emergency. It’s not certain if self-administered tests (if and when available) will be covered.

The CARES ACT also clarifies that Medicaid must cover such tests regardless of whether they are authorized for emergency use by the FDA.


PRESCRIPTION SUPPLY BENEFIT

Medicare PART D recipients can order up to a 90 day supply of medications. Prior to the CARES Act passing, a PART D insurance plan had the option to relax their “refill too soon” restrictions but now they are required to do so. The change is designed so that all Part D enrollees can get an extended supply of medications during the COVID-19 public health emergency.

PLANNING TIP: Place orders of your medications for 90-day supplies to save trips to the pharmacy and the hassle of having to reorder in less time.

SOME OTHER HEALTH PROVISIONS
-Reauthorization of programs to strengthen rural community health, the Healthy Start program, Temporary Assistance for Needy Families
-Dollars to support domestic food assistance programs (breakfast and school lunch, SNAP, emergency food assistance.
-Funding for the Defense Production Act, Pandemic Response Accountability Committee, Disaster Relief Fund, FEMA, Indian Health Service, CDC, Substance Abuse and Mental Health Services Administration, CMS, Public Health and Social Social Services Emergency Fund and others.

If you missed Part IV: Review of the Paycheck Protection Program (PPP) go here.
And, for a comprehensive article about HSAs, go here.

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Updated for 2020: Triple Tax Savings For You: Health Savings Plan (HSAs) Explained

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If you don’t know about Health Savings Accounts (HSA’s) and are eligible to open one, you’re missing out on an excellent savings vehicle with fantastic tax benefits.

What is an HSA?

An HSA is a tax-exempt trust or custodial account established with a bank, insurance company or other IRS-approved entity. They are triple tax-advantaged – contributions are pre-tax/tax-deductible, earnings grow tax-free, and withdrawals are tax-free if used for qualified medical expenses. Hence, the triple tax savings.

These accounts are for medical expenses, but you don’t have to use up the balance during the year. Unused balances roll over from year to year, and you can invest the money for growth. For people who have adequate cash flow, low to average health care costs, and pay high taxes – the best way to use HSA’s is as a long-term savings account for medical expenses in retirement when healthcare costs tend to go up. In this case, you will benefit most from opening an HSA that has good investment options – low-cost ETF’s and mutual funds and take full advantage of compounding growth of your funds.

For those who are on a tighter budget, HSA’s are a great tool for lowering the cost of your medical costs through tax-saving. HSA funds can also be accessed when an emergency hits -such as with a sudden job loss or healthcare crisis as with COVID-19.

Eligibility

You must be an “eligible individual” to qualify for an HSA, which means that:

  • You must have a high-deductible health plan (HDHP). The IRS definition of a “high-deductible” plan in 2020 is a policy with a deductible of at least $1,400 per individual or $2,800 for a family, and whose out-of-pocket maximum is at most $6,900 per individual and or $13,800 per family.You can enroll in a high-deductible health plan through your employer, or on your own as an employee or a self-employed individual.There can be advantages to joining your employer’s plan: if the HSA is part of a Section 125 cafeteria plan and administered by a payroll deduction, the contributions will not only be Federal tax-free, they will be free of FICA taxes as well – an additional tax savings of 7.65%.Your employer may make contributions on your behalf that aren’t counted against your maximum contribution and are exempt from FICA taxes as well. Self-employed individuals do not avoid FICA taxes with their contributions to an HSA. Each State taxes HSA’s differently. For example, California prohibits a state tax deduction for an HSA contribution.
  • You cannot have other health-care coverage except what the IRS considers permissible coverage, for example, plans with limited coverage, such as dental or vision plans.
  • You can’t be a Medicare recipient. Some people who are still working at age 65 delay Medicare so they can continue contributing to an HSA -this could be a good strategy for certain individuals.
  • You can’t be a dependent on someone else’s income tax return.

Contribution Limits for 2020

If you qualify, you can contribute as much as $3,550 to an HSA in 2020 if you have individual health coverage, or $7,100 if you have a family health plan. Moreover, if you’re 55 or older, you can contribute an additional $1,000 as a catch-up contribution. Contribution amounts can be flexible and can be made any time during the year up to the tax-filing deadline in April of the next year. For, 2020 the deadline for contributions has been extended until July 15th.

The money in your HSA remains available for future qualified medical expenses even if you change health insurance plans, change employers or retire. Funds left in your account continue to grow tax-free.

What medical expenses are eligible?

You would use your HSA funds for health expenses that aren’t covered by your traditional health insurance, and many are eligible*, for example:

  • Acupuncture
  • Alcoholism treatment
  • Ambulance services
  • Chiropractors
  • Contact lens supplies
  • Dental treatments
  • Diagnostic services
  • Doctor’s fees
  • Eye exams, glasses, and surgery
  • Fertility services
  • Guide dogs
  • Hearing aids and batteries
  • Hospital services
  • Insulin
  • Lab fees
  • Prescription medications
  • Over the counter medicines and supplies*
  • Menstrual care products*
  • Nursing services
  • Surgery
  • Psychiatric care
  • Telephone equipment for the visually or hearing impaired
  • Therapy or counseling
  • Wheelchairs
  • X-rays

*New with the passage of the CARES Act in March 2020.

Whether you have a self-only or a family health insurance policy, HSA money may be spent on medical expenses for you, your spouse and current tax dependents.

You can’t pay medical insurance premiums out of your HSA. However, HSAs can pay for premiums for long-term care insurance (subject to certain limits); health-care continuation coverage (e.g. COBRA); health-care coverage while receiving federal or state unemployment compensation; and Medicare parts A, B, D, Medicare HMO, and Medicare Advantage Plan premiums, if you’re at least 65. HSA’s cannot be used to cover Medigap premiums.  

Penalties for Non-Compliance

The penalty for taking a non-qualified withdrawal from an HSA is high – you must pay taxes on it plus a 20% penalty if you are under age 65.  So the triple-tax benefit is broken. If you are over 65, there is no penalty on non-qualified withdrawals, but taxes apply in the year of the withdrawal. 

Mechanics of Opening An Account and Using It

You must have an HDHP before you can sign up for a Health Savings Account. Besides working with your employer’s option if you are an employee, many institutions offer HSA’s including insurance companies, banks, or credit unions. You can search the internet for HSA providers.

Depending on the HSA, reimbursements are made by check, ACH transfer, or ATM withdrawal. Good recordkeeping is critical because there are no time restrictions or deadlines for when you can reimburse yourself from the account. You have to keep your receipts to document the date of purchase and also as proof the expense is qualified.  Medical expenses you incurred before the HSA was open aren’t eligible.

Fees

Some HSAs charge monthly maintenance or per-transaction fees, which vary by institution. Some providers waive the fees if you maintain a certain minimum balance. So, it pays to shop around.

What happens to your HSA when you die?

If you designate someone other than a spouse as a beneficiary, the fair market value of the account on the date of death is taxable to the recipient in the year of your death.  If your beneficiary is your spouse, he/she can use the HSA are their own. If you die without a designated beneficiary, the value goes into your estate and is includable on your final tax return.

As you can see, there are many benefits to HSA’s, here are a few more that are unique to this savings vehicle:

  • There are no maximum income thresholds that you can disqualify you from opening an HSA.
  • There are no Required Minimum Distributions (RMD’s).
  • You can be unemployed and contribute to an HSA.

I think you can agree that if you can afford to pay your uncovered medical expenses out of pocket now, and can fully fund your HSA every year invested for growth, you will have a nice nest-egg for health expenses when you are no longer working.

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