New Medicare Law Creates “Health Savings Accounts”

A summary of the new law’s main features.

Congress enacted a comprehensive Medicare reform bill in November. While the most publicized feature of the new law is prescription benefits, it also creates new “health savings accounts” with the following features: (1) Workers under the age of 65 will be allowed to accumulate tax-free savings for health care needs if they have qualified health plans. A qualified health plan has a minimum deductible of $1,000 with a $5,000 cap on out-of-pocket expenses for self-only policies. These amounts are doubled for family policies. (2) Individuals can make pre-tax contributions of up to 100% of the health plan deductible. (3) The maximum annual contribution is $2,600 for individuals with self-only policies and $5,150 for families (indexed annually for inflation). Pre-tax contributions can be made by individuals, their employers and family members. (4) Individuals age 55-65 can make additional pre-tax “catch-up” contributions of up to $1,000 annually (phased in). (5) Tax-free distributions are allowed for health care needs not covered by insurance. (6) The individual owns the account. The savings follow the individual from job to job and into retirement. (7) HSA savings can be drawn down to pay for retiree health care once an individual reaches Medicare eligibility age. (8) Tax-free distributions can be used to pay for retiree health insurance (with no minimum deductible requirements), Medicare expenses, prescription drugs, and long-term care services, among other retiree health care expenses. (9) Upon death, HSA ownership may be transferred to the spouse on a tax-free basis. HSAs become available in 2004. While patterned after the Archer Medical Savings Account, they are more generous and do not have “quotas” on the number of persons who can participate in them.

This article first appeared in Church Treasurer Alert, January 2004.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

ajax-loader-largecaret-downcloseHamburger Menuicon_amazonApple PodcastsBio Iconicon_cards_grid_caretChild Abuse Reporting Laws by State IconChurchSalary Iconicon_facebookGoogle Podcastsicon_instagramLegal Library IconLegal Library Iconicon_linkedinLock IconMegaphone IconOnline Learning IconPodcast IconRecent Legal Developments IconRecommended Reading IconRSS IconSubmiticon_select-arrowSpotify IconAlaska State MapAlabama State MapArkansas State MapArizona State MapCalifornia State MapColorado State MapConnecticut State MapWashington DC State MapDelaware State MapFederal MapFlorida State MapGeorgia State MapHawaii State MapIowa State MapIdaho State MapIllinois State MapIndiana State MapKansas State MapKentucky State MapLouisiana State MapMassachusetts State MapMaryland State MapMaine State MapMichigan State MapMinnesota State MapMissouri State MapMississippi State MapMontana State MapMulti State MapNorth Carolina State MapNorth Dakota State MapNebraska State MapNew Hampshire State MapNew Jersey State MapNew Mexico IconNevada State MapNew York State MapOhio State MapOklahoma State MapOregon State MapPennsylvania State MapRhode Island State MapSouth Carolina State MapSouth Dakota State MapTennessee State MapTexas State MapUtah State MapVirginia State MapVermont State MapWashington State MapWisconsin State MapWest Virginia State MapWyoming State IconShopping Cart IconTax Calendar Iconicon_twitteryoutubepauseplay
caret-downclosefacebook-squarehamburgerinstagram-squarelinkedin-squarepauseplaytwitter-square