FAQ

What is health insurance?

Health insurance is a contract in which the insured and the insurer shares risk. The insured pays a premium to the insurer who pays a predetermined amount of money toward health care expenses.

What is a PPO?

A PPO is a preferred Provider Organization. As a member of a PPO, you can use the doctors and hospitals within the PPO network or go outside of the network for care. You do not need a referral to see a specialist.

If you obtain care from a medical provider outside of the PPO network, you will pay more for the service. For example, a PPO might pay 90 % of the cost for a visit with an in-network doctor but only 70 % of the cost for a visit to a non-network doctor.
You will typically pay a co-payment for each visit/service. These co-payments are typically higher than an HMO co-payment but not always.
You will usually be responsible for paying an annual deductible.

What is a deductible?

A deductible is an amount of money that an insured person pays out-of-pocket before the insurance company becomes responsible for any benefit payments.

What is the difference in a co-pay and co-insurance?

Co-insurance is the portion of costs that are shared between the insured and the insurer. It is common for an insurance company to pay 80% with the insured being responsible for the remaining 20%.

A co-pay is a predetermined amount of money that the insured pays out for certain services. For example, if you have a $20 co-pay on doctor's visits, you would pay the doctor $20 for every visit and the insurance company would pay the rest of the doctor's fee for that visit. Special services, like x-rays or lab work, aren't usually covered under the co-pay for the doctor's visit. Co-pay provisions are frequently found in medical plans offered by health maintenance organizations (HMOs) where a nominal co-payment is applied to each office visit and to each prescription that is filled.

Are co-payments counted as part of the annual deductible?

No, most insurance policies that have co-pays and deductibles handle doctor's visits and hospital stays separately. You have to read the terms of your policy to be sure, but in most cases, a co-pay applies to the doctor's visit and the deductible applies to hospitalization or other healthcare services.

What is the coinsurance clause in medical expense plans and how does it work?

Coinsurance, sometimes called "percentage participation", required the insured to share in the cost of medical care. Under an 80/20 coinsurance provision, the medical expense plan pays 80% of eligible medical charges above any deductible. The insured is required to pay the remaining 20%. Other coinsurance arrangements, e.g., 70/30 or 90/10, are sometimes used. In the event of large or catastrophic medical expenses, an insured might suffer severe financial hardship due to the operation of the coinsurance clause. To compensate for this possibility, many major medical expense plans contain a coinsurance cap, or stop-loss limit. This provision places a limit on the insured's out-of-pocket costs in a given year arising from the operation of the coinsurance clause. The size of the coinsurance cap generally ranges from $2,000 to $3,000, depending on the plan, although limits as low as $1,000 are sometimes used. Once the coinsurance cap has been reached, all eligible expenses above this amount are paid in full, up to the plan's overall limit of coverage.

What is a preexisting conditions clause and what is the effect of its inclusion in major medical expense plans?

A preexisting condition is often defined as a medical condition (i.e., an injury or illness) that required treatment during a prescribed period of time, e.g., 3 or 6 months, prior to the insured's effective date of coverage under the major medical expense plan. Sometimes, a preexisting condition is defined to include medical conditions that were known to the insured, even though no treatment was provided during the prescribed period. A preexisting conditions clause excludes coverage for preexisting conditions for possibly as long as 12 months after the effective date of coverage. Because the definition of a preexisting condition, and the provisions of the clause itself, may differ considerably from one plan to another, it is recommended that newly insured individuals (and prospective insureds) completely familiarize themselves with this policy provision.

What is a Health Savings Account?

An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Everyone (not just the self-employed or small businesses) with a qualified high deductible insurance plan is eligible for a tax deductible HSA.

Why high deductible health insurance?

To get the benefits of a Health Savings Account (HSA), the law requires that the savings account be combined with High Deductible Health Insurance Plan (HDHP). High Deductible Health Insurance Plan costs less than traditional low deductible coverage, because the insurance company does not have to process and pay claims for routine, low-dollar medical care.

Any high-deductible health insurance policy can qualify, as long as it meets the IRS requirements. For 2007, a High Deductible Insurance Plan is a health plan with a minimum deductible of $1,100 for self-only coverage and $2,200 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $5,500 for self-only coverage and no more than $11,000 for family.

Who can get an HSA?

Anyone under age 65 who buys a qualified high-deductible policy can open an HSA. You can't be covered by another health insurance policy that isn't a qualified high-deductible plan (either as an individual or a dependent), although you can still have other disability, dental, vision and long-term care insurance policies.

How and where can I open a health savings account?

It depends on if you're buying coverage on your own or getting it through your employer.

On your own. You can find a list of health insurance companies offereing HSA-eligible plans in your state at HSAInsider.com or HSADecisions.org. You can compare several company's policies in most states at MIBLTD.com, or can search for a local agent who knows which policies are available in your area at the National Association of Health Underwriters Web site. The list of companies offering HSA-eligible plans continues to grow every month.

Through you employer. If you get health insurance through your employer, you may have seen an HSA-eligible option during last year's open enrollment period (generally in the fall). If not, talk to your benefits manager to see if HSAs will be on your health insurance menu. Choosing an HSA could knock down your share of premiums significantly, and some employers may choose to fund all or part of the HSA for you - perhaps even adding a 401(k)-style match.

Does my HSA need to be set up with my Health Insurance Company?

No. The HSA can be set up with any qualified trustee or custodian. Many people choose to open their HSAs with a provider that is different from their insurance company to take advantage of lower fees or greater investment options, and to establish independence in the event that they change insurance providers.

How much can I contribute annually to an HSA?

You can contribute in 2007 the amount of the deductible, up to $2,850 for singles and $5,650 for families, each year to your HSA. And if you are 55 or older, you can put in an extra $800.

Would I fund an HSA with pre- or post-tax dollars?

If your employer offers a high-deductible health insurance policy, you may be able to make pretax contributions, like you would with a flexible-spending account. If you open the HSA on your own, your contributions will be deductible when you file your taxes, even if you don't itemize.

For 2007, you'll be able to deduct the lesser of either

Your insurance deductible, or
$2,850 for individuals; $5,650 for families

If you're between the ages of 55 and 65, you can add an additional $800 to the deduction limits in 2007.

Can individuals make their entire contribution to the HSA at the beginning of the year?

Individuals can contribute their entire contribution at the beginning of the year, up to the applicable contribution limit. They might, however, have to make a corrective distribution later in the year if the individual's eligibility status changes during the year (for instance, if they become covered under another non-qualifying plan, or if their HDHP coverage ends).

Do I have to have "earned income" from a job (as apposed to income from dividends and interest) in order to deduct my HSA contributions for income tax purposes?

HSA contributions are tax deductible, regardless of the source of your income.

Can I pay for my health insurance premiums from my HSA?

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.

Do I have to reimburse myself from my HSA within a certain time period of incurring the medical expense?

No. There is no time limit for when you can reimburse yourself for your health care expenses. You should keep legible receipts of your medical expenses, and records of when you do reimburse yourself.

Can I use my HSA to pay for medical expenses incurred before I set up my account?

No. You cannot reimburse qualified medical expenses incurred before your account is established. We recommend you establish your account as soon as possible once you obtain qualifying health insurance coverage.

Do contributions to an HSA in any way affect my ability to contribute to an individual retirement account (IRA)?

No. Your HSA contributions won't affect your IRA limits -- $3,000 per year or $3,600 for those over 55 ($4,000 per year or $4,500 for those over 50). It's just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

How can I maximize my tax-free savings and investment return?

Paying for your medical expenses as they occur and reimbursing yourself in later years allows the HSA time to grow tax-deferred. You must retain records of medical expenses not reimbursed so they can be reimbursed in subsequent years, but by using this strategy your account can grow significantly higher over time.

Maximum contributions are also limited by your deductible and the month in which your Health Savings Account is established, so it is prudent to set up your account as soon as you have applied for a qualified High Deductible Health insurance Plan (HDHP).

Does the HSA Administrator "approve" medical expenses, or keep track of them?

No. It is your responsibility to keep track of your own qualified-medical expenses. Individual contributions and taxable distributions should be reported on form 1040.

What tax return information will I get from my HSA administrator?

In January you should receive form 1099-SA which will indicate the total distributions you took from your account during the previous year, and form 1099-INT or other similar form indicating your earnings on the account during the year. Distributions are not taxed if you spent the money on qualified medical expenses. Growth on the account is not taxed unless there is distribution of this money for non-qualified purposes.

In May you should receive form 5498, which will indicate your total contributions to the account during the previous year. This form is not sent out until May because you have until April 15 to fund your account from the previous year.

What happens at age 65?

When you turn 65 you become eligible for Medicare. If you enroll in Medicare, you are no longer eligible for coverage under a high-deductible health plan. You may still use HSA funds to pay qualified medical expenses, exempt from income taxes. You are also entitled to take out any amount from your account for any reason, penalty free (though you must pay income taxes on the withdrawals at that time). There are no requirements laid out in the law at the present time indicating when you must start taking distributions. However, we would expect the IRS to treat this like an IRA. If that is the case, then you must start taking distributions from your account at age 70-1/2.

What happens to my HSA if I cancel my HDHP coverage?

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.

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