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| Posted on: Monday, December 29, 2003 |
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Notice 2004-2, released by the Treasury Department on 12/22/03 provided, in Q&A format, initial guidance concerning Health Savings Accounts (HSA’s). Available 1/1/04, HSA’s are a tax-qualified tool for individuals and employers alike to use in financing health care needs. It was passed by Congress and signed into law in December, 2003.
While the old adage about the devil being in the details always applies, the initial details regarding HSA’s suggest they will be a very useful tool for employers to use as part of their Employee Benefit Plans. HSA’s, creatively used, will accel¬erate the trend towards the use of Medical Plans with “defined contribution” incentives. That strategy is based on the assumption that individuals will spend their “own money” prudently. If true, those health care buyers should be rewarded and encouraged for making prudent decisions. HSA’s can do that.
HSA features/cautions include:
1. Tax deductible employer and employee contributions to an “IRA like” account.
2. Mandatory coupling with a higher deductible catastrophic “High Deductible Health Plan” (HDHP) that can be insured or self-funded.
3. Full portability (roll-over and roll-outs) of HSA account values. HSA’s are owned by the individual.
4. No Plan sponsor COBRA obligations.
5. Primary obligation for claim substantiation rests with the employee. This facilitates the use of debit card claims systems.
6. HSA Plans can be part of a Cafeteria Plan.
7. Likely cost shifting to individuals with medium to complex health care needs.
8. Reasonable discrimination test requirements.
9. Penalties/excise taxes for excess contributions over the annual limits and for non-qualified medical expense reimbursements.
Reality Check!
HSA’s will not, nor can any other Benefit planning tool, eliminate future increases in health care costs, but if they work in eliminating waste, they can slow the overall rate of increase. And, that is imperative. For further details, please refer to the Treasury Department’s initial guidance regarding HSA’s or call Denman.
Should you have any additional employee benefit questions or would like to discuss this material in detail, please don’t hesitate to call the Denman Team
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