Health Savings Accounts (HSAs)

The creation of tax-favored Health Savings Accounts, authorized by President Bush’s recent signing of the new Medicare law, offers employers another option to consider as they grapple with rising healthcare costs.

Health Savings Accounts (HSAs) are accounts created for individual employees. Employees and/or employers may contribute to the account. Contributions to HSAs are tax deductible, within limits. HSA distributions are tax free if the accounts are used to pay for qualified medical expenses. Balances are non-forfeitable and can accrue tax-free interest. Therefore, the accounts provide another tax-favored savings vehicle along the lines of an individual retirement account for those who do not have to draw significantly from the accounts for medical needs. Once the account holder reaches age 65, he or she can take distributions from the account for any purpose without tax penalty.

Health Savings Accounts are only available to individuals covered by a high deductible health plan (HDHP). For self-only coverage, a HDHP is defined as having an annual deductible of at least $1,000 and annual out-of-pocket expenses not exceeding $5,000. For family coverage it is a minimum $2,000 deductible and annual out of pocket expenses not exceeding $10,000. The combination of a high-deductible health plan with health savings accounts offers new possibilities for employer and employee savings in the area of health care.

IOI has teamed up with one of the leading providers of HSA accounts, and is pleased to be able to offer these accounts to our clients. These accounts offer a number of great features, including the availability of debit cards to pay for expenses. For further information on these new accounts and how they could benefit you, contact your IOI representative.