HSAs will be an important part of the nationwide movement towards “Consumer Driven Health Plans,” that have been receiving such extensive coverage in the media lately. Provisions for the HSAs were a major component of the Medicare bill signed into law in late 2003, and they will replace the Medical Savings Accounts (MSA) first introduced in 1997. They will allow many people to establish a vehicle to fund their future health care expenses on a tax-free basis.

Brochure	2007 HSA Treasury Overview
Application	Quote Form

Who can qualify for an HSA?:

• As of January 1, 2004, everyone under age 65 is eligible to establish a HSA, provided they have a qualified High Deductible Health Plan and are not covered by another health plan.
• What must a plan offer to be a qualified HDHP?:
• For a single individual the plan deductible cannot be less than $1,000, and it must have a cap of not more than $5,000 on total out of pocket expense (deductible plus coinsurance) in-network.
• The family plan must offer a deductible of not less than $2,000, and have an out-of-pocket cap of not more than $10,000 in-network. (please note: to satisfy a HDHP family deductible it is not necessary for two or more family members to satisfy individual deductibles – the traditional definition – if all family members collectively exceed the “family deductible” benefits become payable. If the plan does not define family deductible in this fashion, it is not a qualified plan).
• The deductibles will be indexed annually for inflation.

HSA Contributions

• You can make a contribution to your HSA each year that you are eligible. For 2007, you can contribute up to $2,850* if you have Self-only coverage and $5,650* if you have Family coverage wet

Determining Your Contribution

• Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. If you do not have HDHP coverage for the entire year, you will not be able to make the maximum contribution. All contributions (including catch-up contributions) must be pro-rated. Your annual contribution depends on the number of months of HDHP coverage you have during the year (count only the months where you have HDHP coverage on the first day of the month). For years after 2006 a special rule allows you to contribute the maximum amount for the year as long as you have coverage for December. However, if you fail to remain covered for 2008, the extra contribution above the pro rated amount is included in income and subject to an additional 10 percent tax. Contributions can be made as late as April 15 of the following year.

Who can contribute to an HSA?:

• There are three types of tax-favored contributions allowed under the guidelines: employee contributions, employer contributions, and salary reduction contributions made through a Section 125 cafeteria plan. All three forms of contributions are exempt from federal income taxes, and employer and salary reduction contributions are exempt from FICA and FUTA taxes.
• The contributions to the account by an employer are not included in the employee’s taxable income, and contributions into the account by an employee are tax deductible.
• Persons between the ages of 55 and 65 can make additional “catch up” contributions of up to $600 a year beginning in 2004 increasing annually by $100 through 2009 up to a maximum of $1,000. Married couples can both make catch-up contributions as long as they each are between the age of 55 and 65.
• For employees it is important to note that HSAs are portable.

What happens when you take funds out of an HSA?:

• Distributions from the account are not taxable as long as they are used to pay qualified medical expenses; e.g., medical, dental, vision, chiropractic and long term care expenses. Any medically necessary expense as defined by the IRS is eligible.
• Paying premiums for Medicare supplement policies are specifically disqualified.
• Distributions for non-medical purposes, prior to age 65, are treated as taxable income and subject to a 10% penalty. Distributions from the account after turning age 65 for non-medical purposes are taxable as ordinary income, but otherwise without penalty.

Clearly the HSA/HDHP will have its greatest appeal to members of the Texas Dental Association who expect to have few medical expenses, want to enjoy the obvious benefits of tax-advantage savings, and minimize their cost of insurance protection. Unfortunately, not all members wanting to participate may be able to, since there will be medical underwriting required to qualify for the new High Deductible Health Plans.

If you would like to receive more information and a cost quote on how an HSA might fit you and your family, or if you’d like to explore the feasibility of making it work for the office staff, please complete the HSA Quote Request page listed below and fax it to us at 1-817-569-8304. We are also available to answer your questions at 1-800-677-8644.

*2007 amounts; adjusted annually for inflation. Individuals age 55 and older can also make additional “catch-up” contributions. The maximum annual catch-up contribution is as follows:   2007 - $800; 2008 - $900; 2009 and after - $1,000