Friday, April 16, 2010

How HSAs and FSAs are Affected by Health Care Reform



* FSAs allow employees to sock away tax-free dollars for medical expenses.
* Starting Jan. 1, 2013, FSAs will have annual limits of $2,500 per year.
* Tax-free contributions to HSAs and Archer MSAs will still be unlimited."

For details, see article link above. Expect these to be the escape hatch from this HCR insanity. Regarding the HSAs, HRAs, and MSAs:

"HSA balances roll over from year to year, allowing participants to save for health care costs and even for long-term care later. Because of the new health care reform law, HSA funds can no longer be used to buy over-the-counter drugs without a doctor's prescription. Those who withdraw HSA funds for nonmedical purposes will see their tax penalty double, from 10 percent to 20 percent of the total withdrawal, starting Jan. 1, 2011.

The Archer Medical Savings Account, the small-business version of an HSA known as an Archer MSA, will see similar restrictions, with the only difference being the Archer MSA's penalty for nonmedical withdrawals now stands at 15 percent and will go up to 20 percent. Archer MSAs also will have restrictions on buying over-the-counter drugs without a prescription starting Jan. 1, 2011.

The HSA's cafeteria plan cousin, the health reimbursement account, known as an HRA, is also affected by the new law. HRAs work similarly to HSAs, but instead of being funded by employee contributions, HRAs are funded by the employer. HRAs will get the same restrictions on over-the-counter medicine.

On the bright side, tax-free contributions to HSAs and Archer MSAs won't be affected. And with far-reaching reform set to transform health care by 2020, it might be comforting for HSA holders to know that the HSA/high deductible model isn't going anywhere."


I've found that my husband's employee HSA plan also contributes to the account--some $700/year. If I were to sign up for the HSA, contribute an amount equal to the uninsured penalty amount, then invest another penalty equivalent into my IRA, I'd make out like a bandit! Now it no longer matters if the health insurance penalty is deductible or not--it'd be SHELTERED and can BUILD UP until someone changes the tax code on HSAs! This means we can pay cash (through our HSAs) for plastic surgery, bariatric surgery, gastric banding, birth control, and all the other things regular insurance doesn't cover now, and not have to worry about pre-existing or disqualifying conditions again. It can also be a means to avoid having to sign up for Medicare later in life (if it even still exists by then).

I wonder if garden supplies and seeds would be considered a "health expense." :) Gardening is starting to pay off in ways I never INCOME TAXES! Who knew a garden would become an indirect tax shelter (by keeping us healthy enough to make money to stash away in a tax-free account)?

I also wonder about allergen-free food as a medical expense...maybe just maybe my health food store purchases could possibly be funded with an HSA. I have to go look this up--this is too tantalizing! Tax-free groceries--it depends on the definition of "medical expense" as far as food allergies go.

P.S.--apparently, there ALREADY IS a deduction for gluten-free foods, but only for diagnosed Celiacs (I am not officially diagnosed). Info here.

I'm going to have to call my tax lady for the rest--I can't find it on Google anywhere.


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