medical savings accounts what is covered
Learn How to Use Your Health Savings Account to Pay for Dental Expenses
Paying too much for coverage and not having enough coverage may be a familiar scenario for many of the residents in America. Not many health insurance companies offer policies with coverage that will give you dental, eye and alternative care. Americans are spending over $30 billion annually just for dental services and most of it is out of their own pocket. The prices for dental care can be very horrid, ranging between $850 to $1,000 for crowns, $150 for check-ups and cleaning and thousands of dollars for oral surgery.
Most of the dental plans available are expensive – the reason being that the insurance companies know that the individuals who purchase dental coverage already have dental problems and will definitely be using the coverage. This is also known as “adverse selection”.
Another option is available today with the HSA, or Health Savings Account. This is an account that you can use to accumulate tax-free dollars for medical bills that aren’t covered under your High Deductible Health Plan, or HDHP. It is required that you are enrolled in a HDHP to qualify for an HSA. These plans have high annual deductibles, but you receive low monthly premiums in exchange. Since the money in the HSA is tax-free, the account holder can funnel their dental expenses through the HSA for a tax write-off.
If you decide to get a health plan with dental coverage, the deductible cannot be paid for with the HSA, but the expenses rendered from services can. Since you’ll be funding your account with pre-tax dollars, you can easily save $500 or more off the costs of your family’s yearly dental expenses by paying for the charges from your Health Savings Account.
There are some other options for dental coverage available. With prepaid dental plans you will be charged low monthly fees, which are usually around $7/month for individuals and $16/month for families. The plans give you significant discounts on check-ups, fillings, extractions and other dental services provided by a network dentist. Some plans help with the expenses for eyeglasses and contact lenses. Since these plans aren’t insurance, it can be paid for with the HSA. When calculating what medical expenses will be reimbursed from your HSA, include dental fees and premiums from the prepaid dental plan.
More About Health Savings Accounts
Any health expenses that aren’t covered under you HDHP can be paid for with your HSA, such as deductibles, eyewear and dental care. As long as the bill you are trying to cover was needed for a health problem, it can be paid for. So if you decided to get a massage while at the spa – this wouldn’t be covered, but if your doctor recommended that you go to a masseuse after a painful accident; this would be covered. Having an HSA is the way health insurance should be – you get to choose what medical help you receive for your health conditions.
This means if you decide to get alternative medicine instead of going to an allopathic physician (conventional doctors that use prescriptions drugs and other treatments for quick-fixes instead of delving to the root of the problem), you can do so and have the expenses paid with the HSA.
What is Considered an “HSA Qualified Expense”?
The definition of qualified medical expenses is only partially given in the IRS Publication 502 and through various federal court rulings. There are few restrictions – as long as the expenses are for medical treatments or prevention for a health problem. For instance, yoga wouldn’t be identified as a medical expense unless your doctor recommended it as a treatment for medical reasons, such as for physical therapy after an injury, then it is qualified as a medical expense.
Many may question why the government would give a tax deduction for someone using some crazy vibration machine to cure their cancer. Again, the HSA is how health insurance should be. You should get to choose what treatments would best benefit your health condition. This gives account holders that power to manage their health as they see fit. Health Savings Accounts are encouraging individuals to take personal responsibility of their health care while loosening the monopoly traditional health care has had over the past couple of decades.
What are the rules regarding Health Savings Accounts?
I started a new job back in Aug. 2006. My employer offers a group health insurance plan but it is not a very good one and has a high deductible. The company dropped the ball in getting me signed up for the plan in time and now their not so good plan isn’t even going to cover a pre-existing condition. I talked to the boss and came to an agreement that in lieu of being covered under their plan they would just contribute $130 monthly (the same amount they would pay to put me on their plan) to a Health Savings Account that I could use to pay medical expenses. He came back and said that he could not make good on the agreement because he was told I had to have some type of insurance coverage to contribut to an HSA. He also said that the max I (or the company on my behalf) could contribute to one of these type accounts is $1100 annually. Which is $460 less than what we agreed upon. Can anyone explain the rules of HSA’s to me and what other options I might consider to work this out?
An individual can set up an HSA for himself or his family. An employer can add an Health Savings Account option to the so-called cafeteria benefit plan it may already offer.
The money put into the plan is before taxes, including Social Security, if part of an employer plan. Otherwise it is a above-the-line deduction, meaning you don’t have to itemize your deductions to get the tax break and that the deduction is not subject to the phase-out rules that make many itemized deductions unavailable to high wage earners.
The Health Savings Account is set up like an IRA. A trustee approved by the IRS must be used. Money put in the plan grows tax free and funds withdrawn for qualified medical expenses are also tax free. Unlike the older Flexible Savings Accounts offered in employer cafeteria plans, you don’t have to spend the money put into the account by year end or otherwise lose whatever’s left. Money can be rolled over from year to year. This can allow for a nice chunk of money to accumulate that can be withdraw tax free at age 65.
In order to qualify for a Health Savings Account, the individual or family must purchase a high deducible health insurance policy. These are special policies that have a minimum deductible of $1000 to a maximum of $5000 for an individual and $2000 to $10,000 for a family. The higher the deductible, the lower the premium.
Individuals can contribute and deduct the lesser of $2250 or the deductible on the policy: for married couples or families it is double that. If over 55, the contribution and deduction is $600 higher for individuals and $1200 higher for couples and will continue to rise at $100 a year until 2009, where it will be capped at $1000 for individuals and $2000 for families or couples.
The money in the Health Savings Account cannot be used to pay the premiums for this policy except in certain circumstances (basically when you’re unemployed). It is meant to meet the deductible on the policy, co-pays, drug costs, eyeglasses or any other medical expense that could be itemized on an individual tax return as a medical expense.
Money used to pay qualified medical costs is withdrawn tax free. Money withdrawn in excess of qualified medical expenses is taxed as income and subject to a 10% penalty, unless the owner is disabled or over 65. Any money in the account at death is added to the taxable estate.
There are no income limits on Health Savings Accounts. If started early, when you are still young and healthy, a substantial amount of money could accumulate to either meet higher medical costs as you get older or to use to supplement your income in retirement.
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