To qualify for a health savings account (HSA), individuals must be covered under a high-deductible health plan (HDHP). In 2010, the annual deductible may not be less than $1,200 for self-only coverage or $2,400 for family coverage (the level is indexed annually).
Under the laws governing HSAs, preventive benefits do not have to be included in the deductible and may be paid up to 100 percent by an employer (there is no requirement, however, that employers do so).
IRS Notice 2004-50, Health Savings Accounts�Additional Q&As (August 2004) clarified the exemption under IRS Notice 2004-23, Health Savings Accounts�Preventive Care (April 2004), providing a safe harbor definition of "preventive care." Briefly:
� Preventive care does not include services that treat an existing condition.
� Preventive care does include medical exams, laboratory tests and procedures aimed at discovering undiagnosed conditions (including, for example, colonoscopies).
Prescription Drugs and Preventive Care
Generally, prescription drugs must be included in the deductible. However, IRS Notice 2004-50 clarified that drugs are considered "preventive care" if they satisfy any of the following three conditions:
� They are taken by an individual with risk factors for a condition that has not yet manifested itself or not yet become clinically apparent.
� They are taken by an individual to prevent the recurrence of a disease from which the individual has recovered.
� They are taken as part of a preventive care program.
The IRS notice gave examples of drugs considered to be for preventive care. These include the treatment of high cholesterol with cholesterol-lowering medications (statins) to prevent heart disease, the treatment of recovered heart attack or stroke victims with Angiotensin-Converting Enzyme (ACE) inhibitors to prevent a reoccurrence, and drugs used as part of obesity weight loss and tobacco cessation programs.
Other Permitted Coverage
As noted, HSAs can only be established for individuals who are covered by an HDHP. Individuals cannot qualify for an HSA if they are covered under any other health plan that is not an HDHP unless the other coverage is permitted insurance (workers compensation or state disability) or is coverage specifically for:
� Long-term care.
Surveys ShowMost companies (over 90 percent, and mostly those with relatively large numbers of HSA/HDHP enrollees) offered HDHP options with preventive benefits that are covered (or "carved out") before the deductible is met, according to a 2007 survey by the trade group Americas Health Insurance Plans (AHIP). Larger companies tended to offer certain categories of prescription drugs as a preventative benefit before the deductible was satisfied, and to provide disease management services.
Similarly, a 2006 study by the Kaiser Family Foundation showed that 74 percent of workers in HRA plans and 82 percent of workers enrolled in HSAs had preventative care coverage carved out. Typically, when preventive services were covered at 100 percent, these services were defined or an annual dollar limit was set.
Stephen Miller is manager of SHRM Online's Benefits Discipline and Compensation Discipline.
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