If you have an HSA or are considering the benefits of having one, find out what health care reform has in store for them and when the changes will go into effect.
Money Girl
171 Healthcare Reform and Health Savings Accounts
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Hi everyone, and welcome back to Money Girl's Quick and Dirty Tips for Richard Life. I'm Laura Adams. Several weeks ago, I talked about the benefits of health savings accounts or HSAs. These nifty, government-sponsored accounts are allowed for anyone who's covered by a high deductible health plan. You avoid paying tax on HSA contributions and earnings when you spend the money on certain medical expenses or reimburse yourself for them. In this show, I'll cover some of the changes that are coming down the pipe for HSAs due to healthcare reform. I'll also tell you what you can pay for with an HSA and the best places to find one. Let's start by reviewing the types of expenses that you can pay for with money you contribute to an HSA. They include medical and dental expenses that are normally tax deductible when you itemize deductions on your tax return. But please note that you can't pay for expenses with HSA funds and claim a tax deduction for the same expenses. That would be double-dipping on tax benefits, which the IRS doesn't allow. However, the IRS does allow you to take a tax deduction for your HSA contributions, even if you don't itemize deductions on your tax return. Tax deductible medical expenses are defined as costs for the diagnosis, treatment, or prevention of disease. They include the cost of prescription drugs, medical equipment, medical supplies, long-term care services, most insurance premiums, dental expenses, and vision expenses. There are actually 78 categories of tax deductible medical expenses listed in IRS publication 502. Don't worry, I won't go through all of them, but here are a few that you might not be aware are tax deductible. Acupuncture, home improvements related to medical care, chiropractor visits, psychoanalysis and psychiatric care, treatment for drug addiction, legal fees related to medical matters, removal of lead-based paint, weight loss programs, smoking cessation programs, prescription sunglasses, and transportation lodging and meals when you travel for medical care. Remember that any expense that's tax deductible can be paid for with HSA funds. But don't confuse a qualified medical expense with something that's simply beneficial for good health, such as a gym membership, swimming lessons, or vitamins, for instance. Those expenses are generally not tax deductible, nor can you deduct expenses that are cosmetic in nature or related to personal hygiene, such as teeth whitening, toiletries, or non-prescription medicines. Because they're not tax deductible, you can't pay for those types of personal care expenses with HSA money. However, there's a unique benefit of HSA's that health care reform will prohibit starting next year. That's the ability to use HSA money for over-the-counter medicines, even though over-the-counter medical products, like bandages, Neosporin, cough syrup, and aspirin, are not tax deductible, they have been permitted as an allowable tax-free expense from an HSA. But starting in 2011, the only medication that you can purchase with HSA funds will be prescription drugs and insulin. Another way that health care reform will affect health savings accounts is that it raises the penalty for spending HSA money on something that isn't allowed, or a non-qualified distribution. Right now, the penalty is 10%, plus ordinary income tax on the amount. But if you slip up and use HSA funds for a non-qualified distribution starting in 2011, the penalty will be doubled to 20% plus ordinary income tax. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing me to this day. Not everyone gets B2B, but with LinkedIn, you'll be able to reach people who do. Get $100 credit on your next ad campaign. Go to LinkedIn.com/results to claim your credit. That's LinkedIn.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. AI might be the most important new computer technology ever. It's storming every industry, and literally billions of dollars are being invested. So buckle up. The problem is that AI needs lots of speed and processing power. So how do you compete without costs spiraling out of control? It's time to upgrade to the next generation of the cloud, Oracle Cloud Infrastructure, or OCI. OCI is a single platform for your infrastructure, database, application development, and AI needs. OCI has four to eight times the bandwidth of other clouds, offers one consistent price instead of variable regional pricing. And of course, nobody does data better than Oracle. So now you can train your AI models at twice the speed and less than half the cost of other clouds. If you want to do more and spend less like Uber, 8x8, and Databricks Mosaic, take a free test drive of OCI at oracle.com/advanced. That's oracle.com/advanced oracle.com/advanced. Health savings accounts are similar to checking accounts and that they usually come with a debit card, checks, and online banking services. That makes paying for qualified expenses from an HSA or reimbursing yourself really easy. You can earn a modest interest rate and usually only have to pay a small monthly or annual fee. Interest rates depend on where you live and how much you have in the account. Higher balances earn more. Credit unions tend to have some of the most competitive HSA rates, so if you belong to a credit union, check their first. Here are four of the best health savings accounts that I've found. The American Chartered Bank offers up to 1% APY or annual percentage yield with no fees. HSA Bank.com offers up to 2% APY with monthly fees of $2.25. Bank of America offers up to 1.5% APY with monthly fees of $4.50 and State Farm Bank offers up to 1.39% APY with annual fees of $25. Even though health care reform will reduce the overall tax break you get from an HSA next year, an HSA will still be a great benefit. If you have a high deductible health plan or are considering getting one to lower your insurance costs, don't miss out on the opportunity to open up an HSA. You can shop for a high deductible health plan at sites like goldenrule.com and ehealthinsurance.com. As always, you'll find links to all the resources I've mentioned on the blog at moneygirl.quickanddirtytips.com. I also want to let you know that my most popular audiobook, Money Girls 10 Steps to a Debt-Free Life, is now available as a short e-book. You'll find it in the Amazon Kindle Store, the Sony Reader Store, the Fiction-wise e-book store, and more. Did you know when you buy a Kindle book, you can read it on your PC, Mac, iPhone, iPad, or Kindle. Learn how easy it is to get out of debt and stay out of debt for good, take control of your finances, and create a more secure future with Money Girls 10 Steps to a Debt-Free Life. I'm glad you're listening. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to a richer life. [Music] Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals, to academic coaches who can help you form a plan to stay on track. We care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. 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