News

Health savings accounts
are another option
08/19/04
The alphabet soup of health insurance and savings options has swelled by one.

Launched this year, health savings accounts (HSAs) have joined the lineup of new ways to set aside money for medical costs.

A health savings account is a special tax-free savings account similar to the IRA, but earmarked for medical expenses by individuals, spouses and dependants. Deposits are 100 percent tax-deductible and can be easily withdrawn to pay routine medical bills with tax-free dollars. Larger medical expenses are covered by a required low-cost, high-deductible health insurance plan. What is not used from the account each year stays in the account and continues to grow tax-free interest to supplement retirement, just like an IRA.

When combined with a qualified high-deductible health insurance plan, HSAs can save employers money on their health care expenses, while at the same time empowering members to make their own health care choices, and benefit from being thrifty in their choices. High-deductible health plans meet specific federal requirements related to deductibles and out-of-pocket expenses. In 2004, the annual deductible must be at least $1,000 for an individual and $2,000 for a family. Annual out-of-pocket expenses cannot exceed $5,000 for an individual and $10,000 for a family.

Here's how it works: Employers save money on the lower premiums charged for high-deductible health plans and have the option of contributing dollars toward their employees' HSAs. Employees and employers can contribute up to a dollar maximum.

The maximum amounts that can be contributed to HSAs in 2004 are $2,600 for an individual, and $5,150 for families. Once you turn age 65, you can use the money for whatever you want, but the money will be taxed at your individual rate unless it is used for qualified medical expenses. If you pull the money out for non-medical expenses before you turn 65, you'll pay taxes and a 10 percent penalty on the amount.

HSAs can be used to help pay smaller qualified medical expenses, such as doctor visits, dental care and hospital stays, until the deductible is met. The high-deductible insurance policy takes care of covered medical expenses exceeding the deductible. You cannot use the money to pay for cosmetic surgery. Nor can you use it to pay your insurance premiums, unless you're unemployed.

Individual purchasers are not eligible for an HSA if they are:

• Eligible for Medicare
• Covered under another person's tax return
• Covered as an individual, spouse or dependent under another comprehensive health plan that is not a high-deductible health plan

If you are interested in a high-deductible health plan that is compatible with an HSA, we have the following high-deductible health plan options available with Jan. 1, 2005, effective dates.

Groups size 2 to 99 can choose one of the following three Blue HSA plans:

Blue HSA 1000

• Available to:
     - Sponsored groups (chambers and associations) size 2-99
     - Area- and industry-rated groups size 2-99
• Single-person deductible ($1,000) or family-deductible ($2,000) must be met before BCBSM provides payment for covered services
• In-network coinsurance is 80 percent with combined in-network coinsurance stop loss of $1,000 for all contract sizes
• CMM-PPO rider required for groups size 2-99 (optional for groups size 100+)
• Optional Preventive Care Rider can be added to this plan

Blue HSA 2500

• Available to:
     - Sponsored groups (chambers and associations) size 2-99
     - Area and industry-rated groups size 51-99
• Single-person deductible ($2,500) or family-deductible ($5,000) must be met before BCBSM provides payment for covered services
• In-network coinsurance is 80 percent with combined in-network coinsurance stop loss of $1,000 for all contract sizes
• CMM-PPO rider required for groups size 2-99 (optional for groups size 100+)
• Optional Preventive Care Rider can be added to this plan

Blue HSA BVO-2000

• Available to:
     - Sponsored groups (chambers and associations) size 2-99
     - Area and industry-rated groups size 51-99
• Single-person deductible ($2,000) or family-deductible ($4,000) must be met before BCBSM provides payment for covered services
• In-network coinsurance is 70 percent with $3,000 (single) and $6,000 (family) coinsurance stop loss.

Groups size 100 and more can choose from the three plans above and the following two additional plans:

Blue HSA CMM 1500

• Single-person deductible ($1,500) or family-deductible ($3,000) must be met before BCBSM provides payment for covered services
• In-network coinsurance is 80 percent with combined in-network coinsurance stop loss of $1,000 for all contract sizes
• Optional Preventive Care and CMM-PPO riders can be added to this plan

Blue HSA BVO-1000

• Single-person deductible ($1,000) or family-deductible ($2,000) must be met before BCBSM provides payment for covered services
• In-network coinsurance is 70 percent with $3,000 (single) and $6,000 (family) coinsurance stop loss

If you are interested in one of the Blue HSA high-deductible health plans and a list of our preferred HSA vendors, contact your BCBSM sales representative or agent.