General Information
Health Savings Accounts (HSAs) were signed by the President on December 8, 2003.

"A health savings account is a good deal, and all Americans should consider it... These accounts will be good for small business owners and employees... This will help more American families get the health care they need at the price they can afford."

- President George W. Bush

To help you better understand Health Savings Accounts (HSAs), read the questions and answers below:

Q. What is a Health Savings Account?
A. A Health Savings Account (HSA) is a tax-favored savings account that is used in conjunction with a high deductible HSA eligible health insurance plan. Participants enroll in a relatively inexpensive high deductible insurance plan. Then open a tax-deductible savings account to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Q. Do I qualify?
A. Anyone with a qualified high deductible insurance plan is eligible for a tax-deductible HSA.

Q. What is a high deductible insurance plan?
A. For 2004, a high deductible insurance plan is defined as a health plan with a minimum deductible of $1000 for self-only coverage and $2,000 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $5,000 for self-only coverage and no more than $10,000 for family.

Q. Can anyone contribute to an HSA?
A. Individuals, employers and their employees can contribute. The accounts belong to the insured individual and are permanent and portable.

Q. How much can I contribute to an HSA in 2005?
A. The annual contribution for 2005 is capped at either $2,650 for an individual and $5,250 for a family OR the deductible, whichever amount is less.

The annual maximum HSA contribution will change each year on January 1st based on the Consumer Price Index.

There are no maximum limits on the accumulation account.

For those turning 55 before the end of the tax year, legislation allows an additional contribution and tax deduction. The additional contribution amount is $500 for 2004 and increases by $100 each year until 2009.

Q. How much can I contribute to my HSA if I only had qualifying medical coverage for 8 months of the calendar year?
A. If you only had qualifying medical coverage for a portion of the year, your annual maximum HSA qualified contribution is calculated by proration.

To calculate the annual maximum contribution, take 100% of your chosen deductible, divide the number by 12, then multiply by the number of months you will have qualifying medical coverage.

Q. What is my maximum out-of-pocket exposure?
A. The out-of-pocket maximum, which is the deductible and coinsurance combined, cannot exceed $5,000 for an individual and $10,000 for a family. Your plan may have less out-of-pocket.

Q. How often will deductibles change?
A. HSA deductibles, out-of-pocket expenses and annual contributions may change each year due to the Consumer Price Index.

Q. If I change jobs can I keep my HSA?
A. HSAs are permanent and portable. You can take your HSA account to your next job.

Q. If I terminate contributions to my HSA account, can I keep my individual medical policy?
A. You can continue to take advantage of your high deductible health plan with the same plan benefits and premium even if you choose to discontinue your HSA.

Q. What can HSA funds be used for?
A. The funds belong to the individual or employee. Funds can be withdrawn tax-free for qualified medical expenses. At age 65, funds can be withdrawn for any reason with standard income tax.

Funds used to pay for the following are tax-free and penalty-free:

• Qualified medical expenses as defined under Section 213 of the IRS Code.
  
• COBRA insurance.
  
• Qualified long-term care insurance and expenses.
  
• Health insurance premiums for individuals receiving unemployment compensation.
  
• Medicare and retiree health insurance premiums, but not Medicare Supplement premiums.
  

Q. What type of medical expenses qualify for reimbursement from my HSA account?
A. There are no restrictions on the types of claims that can be paid from the HSA. The funds in the account belong to you. However, the HSA law restricts the types of expenses that are tax deductible. Reimbursements that are not qualified expenses as defined by the tax code are taxed as ordinary income and are also subject to a 10% penalty by the IRS.

A detailed list and description, Publication 502 "Medical and Dental Expenses," can be obtained by contacting the IRS. Call 1-800-TAX-FORM (1-800-829-3676) and ask for Publication 502, or go to www.irs.gov.

Q. How do I withdraw from my HSA account to pay for qualified expenses?
A. Typically, an HSA Administrator will provide you with a checkbook or debit card.

Q. Does UniCare administer my HSA account?
A. UniCare only provides High Deductible HSA Qualified Plans. At this time, UniCare is in the final stages of negotiations with JP Morgan Chase Bank to offer HSA accounts for their participants. Until then, if you click the "Links" tab located on our homepage you will find a list of several reputable institutions that administer HSA accounts.

The information above is for general purposes only and is not tax advice. Reliable urges you to consult with a tax advisor.