Spelling was my Achilles Heel. I couldn’t spell. I even got a D in spelling on a report card! And whether I was at home or school, when I asked an adult how to spell a word I would inevitably get the same answer, “Look it up”. Looking up a word in a dictionary, decades before AI, meant that you took your best guess, failed, and kept on trying until you bumped into the correct spelling. It was not efficient. There was one benefit to this exercise. Opening up a dictionary was like handing me a car with a full-tank of gasoline and access to the freeways. There were no dead-ends or wrong turns. And reading a dictionary was far more interesting than whatever project I had been assigned.
Our computers and phones now have spellcheck. The big dictionary has been replaced by Google, Alexa, and Siri. The information you need is at your fingertips or by simply asking your electronic assistant. So I was very surprised when one of my life insurance clients recently asked me some questions about Health Savings Accounts (HSA). I told him that the information was readily available and that I had covered this on my searchable blog. He had little interest in reading the blog(!) and felt that I should put the information into a useable format for him and some of his friends and coworkers at a local large business. I wrote him a letter. Not only did I answer his questions he even insisted that I create a special page for this on my website. Instead, I will just post the letter as part of today’s blog.
April 21, 2020
Dear Roger (Name changed so that my attorney can sleep at night):
It is important to remind you, up front, that I am an insurance agent not a CPA. You should consult with your professional tax preparer about whether or not anything is deductible for you. The information I am providing is based on my understanding of how these insurance policies impact my clients’ taxes.
The term H.S.A. is normally used to refer to two very separate things. Part One is a High Deductible Health Insurance Policy. Part Two is a Health Savings Account. You can have Part One without Part Two. You cannot have Part Two without Part One! This is very important and has been an area of confusion.
A High Deductible Health Insurance Policy (HDHP):
- For 2020, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,900 for an individual or $13,800 for a family. (This limit doesn’t apply to out-of-network services.)
- All covered services must apply to the deductible prior to any copays or coinsurance.
- The exception has been Preventive Care performed by a network provider.
- A recently added exception is the diagnosis and treatment for COVID 19 which will be covered without deductible, copayment, or coinsurance.
- It has been generally ruled that even telemedicine, other than for COVID 19, cannot be provided free or with copayments until the deductible has been met.
Once you have an HDHP, whether it is an individual policy or an employer sponsored group contract, you may open a Health Savings Account.
- An HSA may be opened through an insurer, a bank affiliated with an insurer, a bank, or an online HSA bank
- The employer may contribute $0 to the annual maximum
- An individual or employee may contribute between $0 to the maximum
- The annual maximum is the same regardless of who is contributing
- The maximum contribution for 2020 is $3,550 for an individual and $7,100 for a family.
- The catch-up contribution limit for those over age 55 will remain at $1,000.
A friend of mine, an attorney, had a couple of quick questions about Medicare. He will be turning 65 soon and needed to confirm that he didn’t have to sign up for Medicare Part B since he plans to stay on his wife’s group health policy. I verified that his wife works for a company with over 20 employees. So yes, he doesn’t need Medicare Part B. But, I asked, is the group plan a High Deductible Health Savings Account (HSA) Qualified Policy and do you contribute to the HSA? He confirmed that Yes and Yes. In that case, he must renounce Medicare Part A, too. You cannot contribute to a Health Savings Account if you have Medicare. In fact, there is a six month look-back. He didn’t know. And if an attorney could have accidentally screwed this up, what are the chances that your average office worker or machinist couldn’t make the same mistake?
The Medicare issue is particularly troubling. The HR departments do not discuss this with employees. I have talked with Senator Brown’s office about this. They have looked into correcting this, but there are not enough people pushing on this to see action anytime soon.
I hope that this answers your questions about High Deductible Health Insurance Policies and Health Savings Accounts.
The good news is that now, if you search this blog or ask Google, you might come up with this information. The bad news is that you won’t spend an hour or two getting lost on other tangents learning all kinds of interesting stuff you wouldn’t otherwise know.
Picture – Old School – David L Cunix