For Immediate Release
Office of the Press Secretary
December 22, 2003
Fact Sheet: Guidance Released on Health Savings Accounts (HSAs)
HSAs Are Good News for All Americans
Today's Action
Today, the Bush Administration issued guidance on the new Health
Savings Accounts (HSAs), which were established by the Medicare
Prescription Drug, Improvement, and Modernization Act signed by
President Bush on December 8, 2003. The new law will create HSAs
effective January 1, 2004.
The President promised rapid action to implement the Medicare Act.
The Department of Health and Human Services issued regulations for
the discount drug card within two days of the bill signing. Today, the
Department of the Treasury released guidance for HSAs.
These tax-free accounts are designed to help individuals save for
qualified health expenses that they, their spouse, or their dependents
incur. An individual who is covered by a high deductible health plan
can make a tax-deductible contribution to an HSA, and use it to pay for
out-of-pocket medical expenses. This will help more American families
get the health care they need at a price they can afford.
Background on Health Savings Accounts (HSAs)
The bipartisan Medicare Prescription Drug, Improvement, and
Modernization Act includes a provision for establishing HSAs. HSAs are
tax-free savings accounts that can be used to pay for medical expenses
incurred by individuals, spouses, or dependents.
HSAs are open to individuals covered by a high deductible health
insurance plan. The annual deductible must be at least $1,000 for
individual coverage, and at least $2,000 for family coverage. HSAs
are a significant improvement over previous savings vehicles, which
were limited to employees of small businesses and the self-employed and
required health insurance policies with much higher deductibles.
Individuals with existing medical savings accounts (MSAs) can either
retain them or roll the amounts over into a new HSA.
Contributions to HSAs by individuals are deductible, even if the
taxpayer does not itemize. Contributions by an employer are not
included in the individual's taxable income. Individuals, their
employers, or both can contribute tax-deductible funds each year up to
the amount of the policy's annual deductible, subject to a cap of
$2,600 for individuals and $5,150 for families. In addition,
individuals over age 55 can make extra contributions to their accounts
($500 in 2004, increasing to $1000 by 2009) and still enjoy the same
tax advantages.
The interest and investment earnings generated by the account are
also not taxable while in the HSA.
Amounts distributed are not taxable as long as they are used to pay
for qualified medical expenses. HSA funds can be used to cover the
health insurance deductible and any co-payments for medical services,
prescriptions, or products. In addition, HSA funds can be used to
purchase over-the-counter drugs and long-term care insurance, and to
pay health insurance premiums during any period of unemployment.
Amounts distributed that are not used to pay for qualified medical
expenses will be taxable, plus a 10% penalty to be applied to deter the
use of the HSA for non-medical purposes.
HSAs are portable, so an individual is not dependent on a particular
employer to enjoy the advantages of having an HSA. Like an individual
retirement account (IRA), the HSA is owned by the individual, not the
employer. If the individual changes jobs, the HSA goes with the
individual.
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