If your organization offers a tax-advantaged health savings account (HSA) plan, look for much more employee interest in 2007.
That’s because employees can now pour more dollars into their HSAs, thanks to new legislation signed by President Bush in December.
With an HSA, money placed in employees’ accounts is deductible and they can withdraw it tax-free so long as those dollars are used for out-of-pocket medical expenses. Employees with HSAs must also be covered under a high-deductible health plan (HDHP).
Effective Jan. 1, employees can contribute up to $2,850 for single coverage and up to $5,650 for family coverage. Prior to this law, those contributions had to be the lesser of that government-established limit or the employee’s deductible.
Now, employees can pour up to the maximum amount into their HSAs, regardless of their health plan’s deduction amount.
Other important changes made in the law:
- Employees and retirees can now make a one-time transfer of funds from IRAs, flexible spending accounts or health reimbursement accounts.
- Employees who are hired at midyear will be allowed to enroll in HSAs right away and make full-year contributions.
Mental-health parity law extended. The new law also extended, to the end of 2007, the federal Mental Health Parity Act, which prevents most group health plans from placing annual or lifetime dollar limits on mental health benefits that are lower than those of the medical benefits offered under the plan.
For more information on HSAs, visit these Web sites: