January 2011 Articles
Health Care Reform and Your HSA
The Patient Protection and Affordable Care Act was signed into law March 23, 2010. This revolutionary legislation is designed to require health care coverage for most U.S. citizens and legal residents in the next several years. As an employer, there are many items included within this law that will impact your business and employees in the future. Several of the business-sponsored health plan requirements will take effect in 2014, however if you offer a Health Savings Account (HSA), some changes are already effective as of January 1, 2011.
Here is what you should share with your employees:
Qualified Medical Expenses
As of January 1, 2011 you may no longer purchase over-the-counter medications as a qualified medical expense from your HSA. Only drugs prescribed by a physician will qualify to be paid from an HSA, FSA (Flexible Spending Account) or HRA (Health Reimbursement Account) on a tax-free basis.
Non-qualified Expense Penalty
As of January 1, 2011, if you use your HSA funds for nonqualified expenses, you will face a higher penalty. The 10% tax penalty for non-qualified HSA distributions will increase to a 20% tax penalty. This penalty will apply to over-the-counter medications as well as any nonqualified expense paid from an HSA.
Despite these changes, HSAs continue to help combat increases in health insurance costs for those willing to take personal control of their medical expenses. By introducing a qualifying high-deductible health plan (HDHP), some employers will realize a reduction in insurance premiums.* Many employers then utilize this cost savings to make an annual employer contribution into employee HSA accounts. Additional employer benefits include:
- Lower Fixed Costs — Allows control of two plan components, premium and account funding, to be decided independently and reviewed annually.
- More benefit dollars to employees — Ability to deliver insurance dollars directly to employees by funding the account rather than paying 100% to the insurance carrier.
- Incentives for Employees — The reallocation of premium dollars to the HSA will create an incentive for employees to take control of their health care expenses.
- Tax Savings — Contributions to employee HSA accounts are tax deductible for the employer.
The benefits of an HSA are not limited to employers, but extend directly to employees as well. When considering an HSA, the following employee benefits should also be considered:
- Account Ownership — Funds are portable in the case of a change in employers.
- Security — Your high deductible insurance and HSA protect you against high or unexpected medical bills.
- Flexibility in Funding — Contributions may be made by the employer, the employee, or any other person or nonperson (charity, etc.) up to your maximum contribution limit.
- Tax-Free Savings — Unused funds can roll over into the next plan year or be saved for retirement.
- Contribution allowance — Contributions can be made for the prior tax year until April 15th of the following year. Your contribution limit is determined by your qualifying HDHP.
- Tax Deductible Contributions — Contributions to your HSA (that are not from your employer) are tax deductible.
- Tax-Free Earnings — Interest earned on the account will accrue tax-free within the HSA.
- Tax-Free Withdrawals — Funds used for qualified medical expenses will not be taxed upon withdrawal.
- Catch up Contributions — If you are age 55 or older you can also make additional catch up contributions.
As the various components of The Patient Protection and Affordable Care Act are clarified and go into effect, both employers and employees will need to adjust to the new reality of health care. According to many industry analysts, HSA plans may be necessary for health care reform to work, because they provide affordable insurance options and encourage people to become conscious health care consumers. HSAs give the control of health care decisions to the individuals receiving care, thus creating more careful, cost-conscious consumers.
If you have questions about your HSA at Union Bank & Trust or would like to inquire about eligibility to set up an account, please contact one of our HSA experts listed below:
Investment products: Not FDIC Insured - No Bank Guarantee - May Lose Value.
The above information is provided for general information purposes based on the current understanding and resources available concerning the new health care reform law. All information is subject to further clarification and change by the Secretary of Health and Human Services, along with IRS Guidance where appropriate. The information provided is not meant to serve as legal or tax advice. Always consult a legal or tax professional for your specific situation.
*Consult an insurance provider for information specific to your business.
Product Spotlight: Purchasing Cards
The Visa Business Purchasing Card gives you all the features of a Commercial Credit Card, plus the ability to customize merchant codes and spending limits for each cardholder (employee) in advance. Assign unique and independent controls by cardholder. By selecting the controls up front, you’ll minimize the amount of time needed to review routine purchases.
When combined with the self-administration program, you have access to tracking software that puts you in control of assigning and monitoring employee purchasing cards. With access to real-time data, you can easily integrate your purchasing card information into your business's back office system.
- Payment efficiencies – eliminate cash advances, purchase orders and checks
- Increased control – assign specific merchant categories, spending limits, etc.
- Flexibility – make real-time updates to card controls online
- Administrative Access – monitor transactions, close cards or pull reports from your office
- Automated Billing – direct charges to specific accounting areas or post them directly to your accounting system
All The Features, Fresh New Look | back to top
Beginning February 1, Business Banking Online (BBO) will introduce a new, clean, user-friendly design. You’ll also have the option to log in to BBO directly from our homepage, ubt.com. To enroll in BBO, contact our staff — we're here to help.
Refer-A-Business Is a Win-Win | back to top
If you know of a business that would benefit from Union Bank & Trust's Treasury Management Services, please refer them to us. We'll thank each of you with $100. Learn more about Refer-a-Business.