Maryland Bar Bulletin
Publications : Bar Bulletin : November 2007

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Beginning in January 2007, the good news about Health Savings Accounts (HSAs) got even better. Health Savings Accounts have become increasingly popular, primarily because they allow individuals to use pre-tax dollars to pay for qualified medical expenses and they do not have a “use it or lose it” provision like Flexible Spending Accounts (FSA). You can actually carry over unused funds from year to year. In Maryland, small group HSA offerings are very competitively priced, which has enhanced their popularity greatly.

New provisions of the Tax Relief and Health Care Act of 2006, effective January 1, 2007, improved many of the benefits available through Health Savings Accounts. Below are some of the most applicable and important highlights, which you may find a bit arcane or down right confusing. No problem. FranklinMorris is ready and able to assist you in navigating the new provisions and making a decision on how best to use an HSA to stretch your health care dollars.
 

  • HSAs are no longer limited to the lesser of the deductible or the statutory limit. Now participants can contribute yearly up to $2,850 for a single enrollee and $5,850 for all others. These limits apply regardless of when the HSA is established during the year. So, even a November/December start-up plan allows participants to contribute the full statutory amount on a deductible basis. This is particularly beneficial for those participants who are high utilizers of health care and have additional needs beyond the deductible to cover other expenses such as orthodontia or separate out-of-network plan deductibles.
     
  • Enrollees establishing an HSA mid-year are allowed the full contribution limits as highlighted above. Previously, mid-year enrollees’ contribution amounts were prorated based on the month they enrolled. However, if the participant enrolls mid-year and contributes beyond the prorated amount, he/she must stay enrolled in the plan through the following calendar year. For example, if a participant enrolls on June 1, 2007, and contributes the statutory maximum, then he/she would be required to remain enrolled through December 31, 2008.
     
  • HSAs now allow a one-time tax-free rollover of IRA funds into HSAs. Previously, this was not an option. This now allows participants to “prefund” their account while potential employer contributions accrue per pay throughout the course of the year (per pay pre-tax contributions are only available to W-2 or non-owner, non-partner employees – same as Section 125 Medical Flex Spending Account regulations). The one-time rollover limit is the statutory limit of $2,850 or $5,850, and the transfer must be made from the trustee of the IRA funds to the trustee of the HSA funds.
     
  • HSAs now allow one-time tax-free transfers of FSA funds. These are limited to the lesser of the FSA balance as of September 21, 2006, or the date the transfer is made. These transfers are not counted against the statutory limits but, if made, require participants to remain in an HSA for 13 months.
     
  • The treasury is now required to publish HSA statutory limits for the following year no later than June 1 of the current year. This is a big advantage for participants because, previously, the limits were published as late as December for January 1 implementation.
     

 

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Publications : Bar Bulletin: November  2007