Although the Landmark Legislation Signed Into Law in December Was Named the Medicare

New Health Savings Accounts Presents Engineering Firms With A Flexible, Tax-Advantaged Way To Better Manage Health Care Expenses.

Although the landmark legislation signed into law in December was named the Medicare Prescription Drug Improvement and Modernization Act, in fact there are some other important insurance reforms tucked inside this 1000+ page document. One that will be of particular interest to engineers and engineering firms is the creation of Health Savings Accounts (HSAs).

So why the interest?

Like most businesses today, engineering firms are concerned about the rising cost of health insurance. The past few years haves been a time ofr significant increases in the cost of health insurance, while at the same time engineering firms have struggled to maintain competitive wages. Moreover, the forecast for the future is one that continues to show the cost of health insurance increasing at a rate much greater than the cost of other goods and services.

Reduce Your Health Care Costs.

A solution, buried in the Medicare drug bill, is the introduction of Health Savings Accounts. Essentially, the Health Savings Account incorporates a qualified high deductible health insurance plan with a “savings account.” The increase in your deductible will automatically lower the cost of your health insurance. Best of all, it allows you to purchase that high deductible health plan without higher risk. How? Instead of having a large premium that is used to buy insurance, a significant amount of the premium is retained by you. That’s step one. Step two is the “savings account” aspect of the plan: You and your employees deposit the deductible amount into a savings account, to insure against future costs.

Enjoy Tax Advantages.

HSAs represent a tremendous new tax advantage that you can offer to your employees that will provide much greater tax savings than most current arrangements, along with much greater flexibility in how the money in the HSA is used.

If the employer puts money into the HSA, then it is fully deductible and is not considered taxable income to the employee. If the employee adds to the HSA, then employee contributions reduce the employee’s taxable income. Hence, employee contributions are “above the line” rather then the current “below the line” deduction. Note, too, that the “below the line” deduction is limited to the extent that medical expenses exceed 7.5% of an employee’s adjusted gross income.

The solution, buried in the Medicare drug bill, is the introduction of Health Savings Accounts. Essentially, the Health Savings Account incorporates a high deductible health insurance plan with a “savings account”. The increase in your deductible will automatically lower the cost of your health insurance cost. The “savings account” aspect of the program is that the deductible amount is “saved” by you and the employees in the “savings account.”

If the employer puts money into the HSA then it is fully deductible and is not considered taxable income to the employee. If the employee adds to the HSA, then employee contributions reduce the employees taxable income. Hence, employee contributions are “above the line” rather then the current “below the line” deduction Note too that the “below the line” deduction is limited to the extent that medical expenses exceed 7.5% of an employees’ adjusted gross income. HSA’s represent a tremendous new tax advantage that you can offer to your employees that will provide much greater tax savings than most current arrangements along with much greater flexibility in how the money in the HSA is used.

An HSA is all about the employee taking more control of their health care dollar. Self-management. It’s about lowering your premiums and reducing your out-of-pocket expenses. It is the most flexible, tax-advantaged way to insure health care expenses.

Manage Your Health Care Dollar.

With the HSA, the covered individualemployee gains more control as to how their his health care dollars are spent. How? Because the individualemployee – not the health plan – retains ownership and control overwill see the money accumulating in the HSA as something THEY have ownership and control over and not the health plan. Unused HSA funds can be rolled over into future years. If and when an individual should ever experience a hospitalization or other major medical need, a few year’s years’ worth of accumulated HSA funds could make a significant contribution toward covering the out-of-pocket expenses.

Because there is no cap on how much you can roll forward, an individual can continue accumulating money until it’s needed. The money can be used now or in the future for such qualified expenses asSome examples:

HAS dollars can be used for:

§  Doctor visits

§  Prescription drugs

§  Hospital stays

§  Eyeglasses

§  Hearing Aids

§  Long Term Care Insurance premiums

§  COBRA premiums

Reduce Your Health Care Costs

In addition to saving money on your health insurance, you can purchase a high deductible health plan without higher risk. How? The money saved with a lower premium can be used to fund the HSA. Instead of having a significant premium that is used to buy insurance, a significant amount of the premium is retained by you. You get to choose how the money is spent, if at all. In essence you are self-insuring against future costs.

(Insert rest of copy beginning with the paragraph headed-“Be Better Prepared For Future Medical Expenses”)

Be Better Prepared For Future Medical Expenses.

Unused HSA funds can be rolled over into future years. If and when you should ever experience a hospitalization or other major medical need, a few year’s worth of accumulated HSA funds could make a significant contribution toward covering your out-of-pocket expenses.

Because there is no cap on how much you can roll forward, you can continue accumulating money until you need it. And you don’t necessarily need to get sick to use your money. The account can cover services that are not covered under your medical plan such as vision exams, glasses or contacts. Long-term care insurance premiums may be paid from the account. Over-the-counter drugs may be reimbursed from your account. When you reach retirement, you can even pay health insurance premiums with your HSA funds.

Take Your Money With You.

By the way, anyour HSA is also portable. This means an your account stays with an individualyou if he or sheyou should ever change jobs, or in the event he or sheyou changes health insurance coverage. Individuals whof you currently have a Medical Spending Savings Account (MSA) you may roll roll over any available funds into theyour new HSA.

An HSA is all about self-management -- the employee taking more control of his or her health care dollar. It’s about lowering your premiums and reducing your out-of-pocket expenses. It is the most flexible, tax-advantaged way to insure health care expenses.

Tax advantages. Control. Cost savings. Long-term ownership of the account through rollovers and portability. No matter what you might think about the rest of the Medicare Bill, this is one benefit that is a win-win situation for all. To learn more about setting up a Health Spending Savings AccountQualified High Deductible Plans and HSAs, please call your agent, or callontact the AVMA Group Life and Health Insurance Trust at 800.621.6360.1-888-813-7265.

SIDEBAR:

How The HSA Can Save You Money.

In this hypothetical example, the individual is in the 28% tax bracket, and thruough premium and income tax reductions, is able to realize an annual savings of $996. But what may be an even more significant figure is the $1200 in the HSA – money which would have gone to the insurance company (and been gone forever) but instead still belongs to the individual.

Current Plan with $500 Deductible HSA with $1200 deductible

and $400/month premium and $250/month premium

ANNUAL

COSTS $4800 $4200

(premiums) ($3000 premiums +

$1200 HSA contributions)

TAX $0 $336

SAVINGS

TOTAL $4800 $3834

ANNUAL SAVINGS WITH HSA: $996