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Small Business Digest


Five Reasons Why the Self-Employed Should Look at HSAs in 2007

HSA Qualified Health Plans work by coupling a Qualified High Deductible Health Plan (Q-HDHP) with a Tax Advantaged Health Savings Account. The funds deposited to the HSA can be utilized to pay for Qualified Medical Expenses on a tax-free basis and balances roll over from year to year. The minimum Q-HDHP deductibles are $1,100 for single and $2,200 for family coverage. When coupled with 100% co-insurance plans they can significantly reduce the annual maximum out of pocket cash when compared with traditional Co-pay plans. This is especially true when discussing family plans where there may be deductibles for each family member. The Q-HDHP plans utilize family deductibles where one or multiple family members' medical costs go toward a single deductible.

Reason One - Q-HDHP's can reduce the insured's total liability when it comes to maximum out of pocket expenses.  Also, once the maximum annual out of pocket is reached, the insured still co-pays for physician's office visits and prescription drugs. With a Q-HDHP, the more popular "single deductible" plans can offer maximum out of pockets as low as $1,100 for individuals and $2,200 for families. In addition, once the deductible is met all covered medical expenses are paid by the insurance carrier, including prescription drugs.

Reason Two - For the self-employed; health insurance premiums are 100% tax deductible. However, in order to deduct your qualified medical expenses they have to exceed 7.5% of the insured is Adjusted Gross Income (AGI). Because the funds deposited into the HSA are 100% tax deductible, the insured now gets first dollar tax deductibility of their qualified medical expenses. In addition to routine medical care; some examples of Qualified Medical Expenses are; Dental treatments, Eyeglasses, Fertility enhancement, Lodging, COBRA payment and LASIK Eye Surgery to name a few.

Reason Three - In 2006, in order to fully fund an HSA, the insured was required to have a Q-HDHP for the full year. Thanks to the 109th Congress and President Bush, this restriction has been eliminated. In 2007, a single person can now contribute up to $2,850 and a family can contribute up to $5,650, regardless of the deductible selected or when the insured obtained the Q-HDHP. Individuals who are 55 and older can make additional catch-up contributions of $800 to their HSA in 2007.

Reason Four - The first few years of being self-employed are the most difficult when it comes to cash flow. The IRS is now allowing a one-time "penalty free" funding of Health Savings Accounts by rolling funds from an IRA into an HSA. In order to avoid penalties, this must be a trustee-to-trustee transaction. This can free up as much as $470 in monthly cash flow for a family in their mid forties with two teenage children without compromising coverage in their first year of being enrolled in a Q-HDHP.

Reason Five - Many local banking institutions are now offering Health Savings Accounts. This makes it easier than ever for the self-employed to manage their Health Savings Account related finances. No longer does the insured have to use an HSA trustee that is located outside of their home state; making it painless to deposit and access funds that are necessary to pay for Qualified Medical Expenses.

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