Individual Health Savings Account Rounds Out One of Nation's Deepest Consumer-Driven Portfolios

CHAPEL HILL, N.C. – Blue Cross and Blue Shield of North Carolina (BCBSNC) today announced its first health savings account (HSA) product for individuals. The new product, Blue Options HSASM, will be available beginning Nov. 7, 2005 for Jan. 1, 2006 effective dates.
 
In addition to the individual HSA product, BCBSNC also has an enhanced group HSA offering and a brand-new health reimbursement account (HRA) product. The new group HSA and HRA products will be available beginning Oct. 10, 2005 for Jan. 1, 2006 effective dates. This creates one of the deepest portfolios of CDHP health plans in the country, allowing BCBSNC to match groups and individuals with the product that is "just right" for them.
 
By pairing a high deductible health plan (HDHP) with an HSA product, consumers have more control of their health care dollars. They may also make health coverage more affordable for many — especially small businesses and individuals buying their own coverage.
 
"HSAs give individuals the option of managing some of their own health care dollars through accounts they own and control, creating new incentives for members to be wise consumers of medical care," said BCBSNC President and CEO Bob Greczyn. "Health care is constantly evolving and BCBSNC is keeping pace with that change by offering a new and completely different way for consumers to manage their health care expenses."
 
"We're working to make these plans easy for consumers and employers to use by allowing members to arrange their insurance coverage and HSAs in one purchase — rather than shopping for their HSA-qualified plan and HSA account separately as many of our competitors require. And we're making it simpler for our members to manage these accounts by offering an integrated Web portal that displays all health care claims and financial account transactions in one place, on one screen," Greczyn said.
 
"We see the HSA model as the convergence of the health care and financial services industries," said BCBSNC Senior Vice President of Sales and Marketing John Roos. "This convergence required a technological innovation that brings together health care information and savings account information in one place, allowing consumers to manage their HSA transactions easily."
 
HSAs offer many advantages for consumers not typically found in other health plans:
  • Contributions to the HSA are tax-deductible.
  • Interest income on HSA accounts is tax-free.
  • HSA withdrawals can be used to pay for any qualified medical expense tax-free.
  • Employers and employees can both contribute to an individual's HSA.
  • HSAs are portable, and an individual immediately owns all funds deposited in his or her HSA.
  • Unspent balances roll over from year to year.
Individuals interested in learning more about these new products should contact their local, authorized BCBSNC insurance agent or visit bcbsnc.com  beginning Nov. 7.

Questions and Answers: Health Savings Accounts (HSA)

 
What is a health savings account?
A health savings account (HSA) is a triple-tax advantage way to help pay for current or future out-of-pocket health care expenses. An HSA can be established through a custodian or trustee. Dollars that are not used in a given year roll over into the next year and are completely portable should the participant change jobs or switch health coverage. An HSA can be established when enrolled in a high-deductible health plan.
 
What are the advantages of a high deductible health plan and an HSA?
The premiums for a high-deductible health plan (HDHP) can be less expensive than traditional insurance coverage. HSAs, which can be established by those with a HDHP, also provide what could be called a "triple-tax advantage." You can contribute to an HSA tax-free. Earnings on your HSA account aren't taxable, and funds withdrawn to pay for qualified medical expenses aren't taxed either. The net effect is that HDHPs and HSAs can be more affordable for some people than other health insurance products.
 
How do I know if this is the right health care plan for me?
People should review what they are spending now on insurance premiums and out-of-pocket medical expenses. The premiums for a high-deductible plan will likely be lower. Out-of-pocket expenses will likely be higher, but since they can be paid with tax-free dollars through an HSA, they may be more affordable. Your insurance agent or broker can help you think through these options.
 
Aren't HDHPs and HSAs just for the young and healthy?
Actually, these products provide extremely rich benefits once out-of-pocket maximums are satisfied, so even those with serious or chronic illnesses should consider them carefully. While it is too early to tell exactly what groups of consumers will choose HDHPs and HSAs, there is early evidence that those over 40 and those previously without insurance are indeed buying these products.
 
Won't people be motivated to avoid needed health care to save money?
BCBSNC makes an enhanced preventive option available that provides access to certain preventive care without having to meet the deductible. It's true that people will have new incentives to avoid paying for care that does not have much value for them, and that can only help hold down increases in the cost of care.
 
Who is eligible to open an HSA?
We recommend that individuals check with their tax advisor before opening or contributing to a health savings account if they are unsure about to their eligibility. However, an individual who meets all of the following criteria may open and contribute to an HSA:
  • Covered under a high-deductible health plan (HDHP) on the first day of the month
  • Not covered by any other non-HDHP plan (with certain exceptions for plans providing certain limited types of coverage)
  • Not enrolled in Medicare
  • Not claimed as a dependent on another person's tax return
What type of health plan qualifies as a high-deductible health plan (HDHP)?
In 2005, the HDHP requirements are as follows:
  • A minimum deductible of $1,000 for individuals ($2,000 for families)
  • A total out-of-pocket maximum of no more than $5,100 for individuals ($10,200 for families)
  • No coverage (other than preventive care) prior to meeting the deductible
If you are unsure as to whether your plan qualifies, we recommend that you consult with your tax advisor before signing up for a HSA. However, please note that Blue Options HSASM is a qualified HDHP.
 
What medical expenses can HSA funds be used to cover?
HSA distributions are tax-free if used for qualified medical expenses, as defined by Internal Revenue Code Section 213(d). Qualified medical expenses include:
  • Office visits
  • Hospital bills
  • Over-the-counter medications
  • Pre-deductible amounts
  • Coinsurance
  • Noncovered services, like LASIK eye surgery
What are some items that HSA funds cannot be used to cover?
Baby sitting. Veterinary fees. Purchases of controlled substances. Services for which coverage has been received. Cosmetic surgery. Dancing lessons. See IRS publication 502 for more information on what expenses do and do not qualify.
 
What happens if I use my HSA to pay for nonqualified expenses?
Nonqualified distributions will be taxed as part of gross income and will incur a 10 percent penalty. After age 65, the 10 percent penalty is dropped, though the distribution is still treated as taxable income. Generally, it's not to your advantage to use HSA funds for nonmedical expenses.
 
How much can be contributed each year to an individual HSA?
In 2005, the maximum annual contribution is equal to the health plan deductible or $2,650 for self and $5,250 for family - whichever is less. Roll-over amounts from previous years, and/or medical savings accounts or another HSA, do not count toward the maximum annual contribution. These amounts will be updated each year to account for inflation.
 
People between the ages of 55 and 64 can contribute an additional $600 in 2005 above the maximum to their HSA. This "catch-up" allowance is scheduled to increase in $100 increments each year through 2009.

About Blue Cross and Blue Shield of North Carolina:

Blue Cross and Blue Shield of North Carolina is a leader in delivering innovative health care products, services and information to more than 3.2 million members, including approximately 620,000 served on behalf of other Blue Plans. For 72 years, the company has served its customers by offering health insurance at a competitive price and has served the people of North Carolina through support of community organizations, programs and events that promote good health. Blue Cross and Blue Shield of North Carolina is an independent licensee of the Blue Cross and Blue Shield Association. Access BCBSNC online at bcbsnc.com.
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