How HSAs Can Help You and Your Business

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Increasing health care and insurance costs are top-of-mind for both employers and consumers these days.

As we continue to gauge the impact of HR 3962 (the Making Health Care Affordable Act) over the next few years, one item we should all learn about is how Health Savings accounts (HSAs) can potentially reduce insurance costs and increase savings for medical related expenses.

HSAs are tax-favored savings arrangements that can be utilized if you are covered by a high deductible health plan (HDHP). For 2011, HDHP's are defined as individual plans with a minimum annual deductible of at least $1,200 and maximum out-of-pocket expenses of $5,950.

For family plans, these amounts double to $2,400 and $11,900 respectively.

In exchange for paying a certain amount of medical expenses up front in an HDHP, individuals (and employers who offer them to employees) enjoy less expensive insurance premiums, and the opportunity to save for out-of-pocket expenses in an HSA.

Many employers, including Community Bank, offer HDHPs to employees through their benefits plans. If used to pay for qualified medical expenses, HSA contributions are tax-free and allow individuals to save and pay for approved medical expenses with their HSA.

Approved medical expenses include things like co-pays, prescription drugs, dental work and much more.

Starting in 2011, the new health care reform law prohibits the use of HSA funds to buy over-the-counter drugs without a doctor's prescription although these purchases were previously allowed.

A full list of HSA approved expenses are available online at website www.irs.com, in IRS Publication 502.

Although HSAs usually earn interest, they can also be used to pay directly for expenses.

In fact, Community Bank's HSA includes a debit card that can be used to make approved purchases. Paying with an HSA debit card, or with online bill pay from a an HSA account, also allows participants to separate, document and track medical expenses.

If you're subjected to an IRS audit, you may need to provide proof that HSA payments were used for qualified expenses, so using these tools can help you maintain accurate records of your qualified health care expenses.

Lastly, contributions made from an employee's paycheck directly to an HSA are excluded from income and non-qualified distributions are tax-deferred after 65, similar to an IRA. HSA balances roll over from year to year, so if you are fortunate enough to be relatively healthy, and you accumulate significant money in your HSA, you can withdraw your HSA money during retirement with no penalty.

Upon such distribution, you'll only need to pay ordinary income tax, as you would with a regular IRA distribution.

Also like an IRA, HSAs have a maximum annual contribution cap. The maximum HSA contribution that can be made in 2011 is $3,050 for individual coverage and $6,150 for family coverage.

If you'd like additional information about HSA's for yourself or employees, Community Bank would be happy to discuss them with you. Just stop by our branch at 28 E. Alder in Walla Walla, our branch in Milton-Freewater at 13 N.E. Fifth Ave., or our new location in College Place when it opens this spring.

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