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Health Savings Account Changes
August 2, 2010
Do you have a Health Savings Account (HSA) or Archer MSA? If so, the Patient Protection and Affordable Care Act changed the type of medical expenses that qualify for payment from these accounts, and it increased the additional tax on distributions not used for qualified medical expenses. These changes are effective after December 31, 2010; thus, they will be applicable to you in less than 6 months.
In order for distributions from the HSA or Archer MSA to be excludable from gross income, the expenses must be for qualified medical expenses, which are not reimbursed by the insurance provider. These expenses include the following:
- Medical care (examples: doctor visits, treatments, etc.; does NOT include payments to purchase health insurance, this is specifically disallowed by statute from both an HSA and Archer MSA).
- Lodging away from home when medical care is provided by a physician in a licensed hospital and personal pleasure does not play a significant role.
- Prescribed drug, meaning the individual can demonstrate a need for the medicine based on their doctor's prescription. The medication will still qualify for payment through the HSA or Archer MSA even if the medication is available without a prescription.
- Insulin purchases.
- Qualified long-term care services.
What will be different in 2011 compared to 2010? In the past, HSA and MSA funds could be used to purchase over-the-counter drugs. However, beginning January 1, 2011, these items are no longer considered qualified medical expenses. Instead, the only medications that can be purchased using these funds are medications that are prescribed by a doctor.
The second change the new law brings to both HSAs and MSAs is the change in the additional tax on distributions not used for qualified medical expenses. Beginning January 1, 2011, any distribution that does not meet the qualified medical expense criteria will be includable in gross income and subject to a 20% additional tax.
Please do not hesitate to call our office, 330-492-0094, if you have any questions regarding the changes to the HSA and MSA accounts.
by: Maria K. Liossis, CPA
