Tag Archive health care

Archer MSA – Tax-Exempt Custodial Account or Trust

 Archer MSA is the tax-exempt custodial account or trust that is set up with financial institutions like the insurance companies or the banks. Contributions that are made into this account can also be used as payment for healthcare costs that are not under the health insurance policy coverage.

Benefits from the Archer MSA

  •  Insurance costs can be lowered
  • Contributions as well as any interest or earnings on these contributions can grow free of tax until it I withdrawn. This is like the contributions that are tax free when it is used to cover the expenses for qualified medical costs.
  • It is possible to deduct the individual’s contributions atop the income tax return even if this is not itemized.

 Who can have Archer Medical Savings Account?

 There are two rules to determine whether the person qualifies for the Archer MSA or not:

  1. The individual must be working for a small business or a small employer. The definition of a small employer is an entrepreneur who has an average of 50 or even fewer employees in the course of two years.
  2. The individual must have an HDHP or the high deductible health plan. The HDHP has higher deductible than a number of health plans out there and also has maximum limits when set alongside the amount that must be paid for out of pocket costs.

The premiums for the High Deductible Heath Plan are usually 20 to 50% lower than the health plans that has lower deductions. If the individual is self-employed, then these are also tax-deductible.

The HDHP must also meet specific IRS requirements so that the individual can qualify and get his or her own Archer Medical Savings Account. The basis are types of coverage, the minimum annual and the maximum annual.

Who Would This Work For?

 The individual can only obtain an Archer MSA if he or she is enrolled in a high deductible health plan that is eligible and qualified. The kind of plan that is ideal for a young individual who is in good condition and single is the Archer MSA because for others, this can be quite a big and serious gamble financially due to the high deductibles as well as the requirements that must be met to be qualified for the insurance coverage.

If the Archer MSA is the only kind of insurance that is possible to get, then it is better the individual saves and has enough money in order to meet the deductions from the MSA. In doing so, this ensures that he or she is saving money that is tax free instead of paying the amount right there and then, fresh from the person’s checking account, even after it has already been taxed.

Archer MSA must be paired with HDHP

 Usually, the Archer MSA is paired with HDHP or what is called the High Deductible Health Plan. This is because the HDHP has higher deductibles compared to most health plan coverage. It also has a limit on the total amount that the individual must pay to cover the expenses that he or she first shelled out cash for. The premiums for HDHP must also meet the certain requirements set by the IRS so that it can be used with the Archer Medical Savings Account.

Requirements for Archer Medical Savings Accounts

 The legislation that provides Archer MSAs expired toward the end of 2007. Taxpayers, as well as their employers, cannot establish Archer Medical Savings Accounts any longer. However, if they have existing accounts prior to 2007 then they can use and contribute to this.

How MSAs Work

 Archer MSAs are custodial accounts that come with insurance providers and financial institutions. These are accounts that are tax-deductible and can be used to qualify for the medical expenses. Similar to HSA or what is also known as health savings accounts, the Archer Medical Savings Account function in similar manner like the IRA or the individual retirement accounts. The employee or the employer can also contribute to Archer Medical Savings Account. The individual can deduct from the contributions in the taxes, these are also subject to a couple of rules. Archer Medical Savings Account have an interest that can be tax-free and even tax-deferred. The withdrawals for these medical expenses may often be free from tax withdrawals for the non-medical reasons of it being taxable. If that is the case, then the penalties apply.

Archer Medical Savings Accounts Are Not Substitutes for Health Insurance

 It is important to note that the MSAs are not substitutes for health insurance plans. It may be eligible for health care costs that are not included in the insurance. The individual must then cover the high-deductible health care insurance during the time that this has been established in Medical Savings Account.

Qualifying Medical Expenses

 There are tax-free contribution and distributions from the Archer Medical Savings Account that can also be brought into consideration all for the purposes of following the medical costs. These are:

  • Emergency treatment
  • Dental Care
  • Hospitalization
  • Prescription drugs, which also includes insulin and medications that can be ordered over the counter as long as these are prescribed by physicians
  • Acupuncture
  • COBRA continuation coverage
  • Premiums from the health insurance and policy plan if the individual is unemployed
  • Ambulance service
  • Chiropractic Care
  • Lab work
  • Vision care
  • Doctor’s visits

If the individual withdraws money from his account for other purposes, then the funds are regarded as taxable and considered as regular income.

There is a 20% tax penalty that is applied to the amount of the withdrawal unless the individual is aged 65 or older and disabled. This increase in penalty ranges from 15% in 2011. When the individual is older than 65, then he or she can withdraw the unused portion of the Archer Medical Savings Account in order to supplement the costs of retirement.

The distributions and contributions that have been made must be reported especially when these are eligible medical expenses.

Tax Deductible Contributions

 The contributions that are limited based on the amount of the individual’s health plan policies are also deductible. If there is a family healthcare plan, then it is possible to deduct 75% on the annual premium. Other than that, 65% can also be deducted.

Both the employee and the employer can contribute to the Archer Medical Savings Account of the former. The only difference is this contribution is done on different dates. The health insurance policy of the employee cannot have lapses at any given time of that year. The contributions of the employer cannot also exceed the annual earnings.

Taxable Contributions

 If the employer is the one responsible to make contributions to the account then it also exceeds the maximum that is allowed by the health plan of the employee. As mentioned previously, the employee must pay 6% tax atop the amount.

Making Contributions to the Archer MSA

 The tax deductible on the contributions to the Archer Medical Savings Account is made by either the employee or the employer but not by both in similar year. The employee must also be covered by the HDHP that whole year in order for the full amount to be deducted. The contributions of the employer are also nontaxable to the individual.

There are limitations to the total amount that is contributed to the Archer Medical Savings Account. The maximum of this is 75% on the annual plan deductible on the health care costs. This is for the family plan. It is 65% if it is a family plan. An example of this calculation of this is that a family plan has a deductible of $4,800 and it is possible for the individual to contribute $3,600 every year. If it is, on the other hand, an individual plan, then it has a $2,400 deductible. The most that the individual can contribute is a total of $1,560.

Any contributions that go beyond the maximum cannot be deducted from tax and the individual will also pay 6% for the excise task on the amount. Another limitation is contributions cannot exceed what the individual earned for the whole year.

Withdrawing Money from Archer MSA

 It is possible for the policy holders to withdraw funds from their Archer Medical Savings Account in order to cover for the medical expenses that have not been reimbursed. There are some trustees that furnish the checks for the individual to write himself or herself. Then there are others who give them debit cards so that it can provide instant access to the Medical Savings Account of the Archer funds.

The individual and the trustee must report the distributions. However, the individual is not required to pay the income tax as long as this was used for an eligible medical cost like ambulance service, dental expenses, emergency treatment, hospitalization, prescription drugs, chiropractic and acupuncture, wellness and preventive programs, vision care that includes glasses, lab services, health insurance premiums while unemployed, doctor’s office visits and COBRA continuation coverage.

If any portion of the contribution was regarded as a non-qualified medical costs, like the premiums for the HDHP, then the individual must pay the income tax including the penalty tax of 15% on the amount. However, there is also no penalty if the individual is disabled, aged 65 and older or passed away in that said year.

Archer Medical Savings Accounts are portable and will stay with the policy holder even if there is a change in employers. Any money that was not used for that year primarily for medical reasons can continue to grow and even be tax-deferred and remain in the account. The option to invest is still a choice and it will affect the return rate. Just like any investment, the individual must make sure that there are risks when they do choose to sign up.

What Happens to the Money from Archer MSA?

 If the person does not use the money by the end of the year, then it rolls over. If the individual dries to access the allotted money for other expenses aside from medical reasons, this will be taxed. It is possible to control how little or how much money can be deposited so policy holders are advised to plan wisely.

Deciding Between the HSA and the Archer MSA

 When the individual has the Archer Medical Savings Account, it is only necessary that he or she also checks the same kind of savings, specifically the HSA or the health savings account. The latter was created as a significant part of the Medicare Prescription Drug, Modernization and Improvement Act in 2003 to expand the benefits that were offered by the MSA Funds from the Archer Medical Savings Account and that can then be carried over to the HSA, therefore making it easier and simpler for the individual to just go to one kind and then to another. However, before the individual can do this, he or she should understand the major differences between the HAS and the Archer MSA.

  • An eligible individual below the age of 65 who is under a health insurance that qualifies for HDHP can have an HAS; on the other hand, an individual who is self-employer or a small business employee who his covered by an HDHP that qualifies can also start having an Archer MSA.
  • The minimum amount that is deducted can also be applied to the individual’s HDHP and also used alongside the HAS that has $1,200 for the individual as well as $2,400 for plans that cover family. It is also lower than the usual minimum annual deductions that are applied to the HDHP when put alongside the Archer Medical Savings Account.
  • Both the employee and the employer (if there are) can contribute to the HAS in the same year. The Archer MSA does not let the contributions from the employee and the employer be processed in the similar year.
  • The individual can contribute more every year to the HSA than he can contribute to the Archer Medical Savings Account. The annual contributions to the HSA can be limited to the amount $3,050 for individual plans and $6,150 for family plans.
  • If the individual reaches the age 55 by the end of the year, then they can also catch up in terms of contributions to their HSA. It can even amount to $1,000. There are no more catch up contributions that can also be made to the Archer Medical Savings Account.

What are Health Reimbursement Arrangements and How Do These Work?

An HAS or what is also commonly known as Health Reimbursement Arrangement has been approved by the IRS and is funded by employers. It is a tax-advantaged health benefit insurance for the employees which allow them to be reimbursed for the medical expenses that they had to spend for from out of their pockets. This is also a health insurance policy that is premium. It is important to know that HRA is not considered to be health insurance. The HRA lets the employer contribute to the account of the employee and also provide the reimbursement for expenses that are eligible. An HRA insurance plan is also a smart and efficient way to provide the health insurance benefits and let the employees pay for a varied range of medical costs that are not covered by their insurance policies.

The primary requirements for the HRA are 1) the plan can be funded primarily by just the employer and can also not be sponsored by deducting the salary of the employee and 2) the plan can provide the benefits especially for medical expenses that are substantiated.

In other words, the HRA is regarded as a copay or a deductible. Employees can partner up with their employers on any health plan that they choose. This works by the employer setting aside the allocated budget to the employee’s HRA. This is for an annual basis. The difference between the other health spending accounts is that only the employer can put the money into the HRA. The money is also available to the employee when the year starts.

HRAs can be designed however way the employer wants to fashion it. It should just suit the particular needs of both the employer as well as the employee. Interestingly, the HRA is the most flexible types, if not one of, among all the benefits plans for the employee. This is the very reason why it appeals to a number of employers.

A federal legislation was passed way back December 2016 and because if this, there is an HRA that is available specifically for small businesses. These are covered by new provisions by the HRA that are targeted solely for small businesses.

How to Use the HRA

 When the policy holder goes to the hospital or sees a doctor, the money that is in his or her HRA is already qualified to cover the medical costs. A number of the members with HRAs have a payment process that is regarded as seamless. The doctors bill the employers and the employers use the funds from the employee’s HRA to pay the costs. This processed payment will then be recorded on the benefits and the explanation or what is also known as the EOB. The individual can also check the online account.

If the individual uses up all the amount that is in HRA even before the year ends, then he or she is required to pay what is owed out of his or her own pocket. If there is still money left toward the end of the year, there is a possibility that the employer may roll it over so that it can be used the next year. However, there are some employers that won’t do this so it is better to use it than lose it.

What Can It Be Spent On?

 The employer decides which medical costs are eligible to be reimbursed. Usually, the HRAs cover:

  • Deductibles
  • Copays (for PPO only)
  • Coinsurance

The HRA cannot be used to pay the monthly premiums of any health insurance.

Advantages of the Health Reimbursement Arrangements

 The HRA allows both the employer and the employee to save on the healthcare expenses.

These HRAs have benefits that help the policy holders save more especially when it comes to health care expenses.

  • Affordability: The premiums for the health care coverage plans that are offered with HRAs are pretty much lower every month than any other plans out there.
  • Employer contributions: The employer can fully fund the HRA even without any contribution from the employee.

Enrolling in the HRA can also provide major advantages, especially to employees. These are reduced health insurance premium that result from the Health Plan that is High Deductible and the availability of sponsored funds from the employer to pay the medical costs that are incurred previously to the point when the deductible of the insurance has been met.

Expenses can be reimbursed from HRA depending on the design of the plan. This covers co-payments, prescription medications, dental expenses, vision expenses, co-insurance and deductibles. This also includes other heath related expenses that were first paid by the employee from their pockets.

HRA funds are also contributed to the employees but on a pre-tax setting. The funds, therefore, aren’t taxable, especially to the employee. Hat being the case, employees do not have to claim that there is a deduction in their income tax for the expense that was reimbursed because of the HRA.

How the HRA Benefits the Employer

 HRAs are commonly offered in relation with the Health Plan that is High Deductible. There is a rule that the High Deductible Plan results in a premium cost that has been reduced can create real savings for the healthcare costs which benefits the employer. HRA contributions can also be funded through the savings that are gained from the premium costs on the lower statute. By funding the HRA, the company’s employer can effectively bridge the gap that separates the higher deductibles from the expenditure amounts. This is where the insurance coverage gets a kick for the employees.

Above all, the contributions of the employer to the health reimbursement arrangements are completely tax deductible. It is also tax free for the employee.

Employers can establish the costs of the HRA funds – this includes every health-related qualified expense. Since these are also flexible, the HRA coverage allows the employers to control the costs especially when providing the benefits from the healthcare policy and at the same time provide benefits to the valued employee.

With the HRA< the healthcare expenditures of the employee are clear and visible for both the employer and the employee. This fosters a more open communication pathway as well as a bigger understanding on the over-all costs of the healthcare. On top of this, employees can also control and monitor the total healthcare costs and the upside to this is that they become more intelligent and more conscientious when consuming anything related to healthcare.

Definition of Terms

 Deductible, Co-insurance and Co-pay: Every medical expense that applies to the health plan as deductibles, co-pay amount and coinsurance total can all qualify and be eligible for reimbursement. These qualified expenses are incurred by employees as well as the family of the employees. The EOB or the statement on the Explanation of the Benefits that show the evidence of expenses. It applies to the deductible on the insurance and is also required for subtracting the requests for reimbursement.

 Deductible: The total medical costs that apply to the deductible amount of the health plan can all qualify for reimbursement. This plan is the design that also does not include co-insurance or co-pay amounts. The qualified and eligible expenses that have been incurred by both the employee as well as the employee’s family are also considered as deductible. The EOB statement is required in order to substantiate requests for reimbursements.

All Medical Expenses That Are Uninsured: All medical expenses that were paid from the pockets of the employees or what is also regarded as uninsured costs are qualified and eligible. This also includes co-pays, dental, prescription, vision, coinsurance , nd deductibles. These expenses can also be incurred via the employee or the family of the employee. Proof includes the EOB statement, the receipt the bill that identifies the specific date of service, the total amount of rendered service and the official name of the business of the service that provided this to the employee. These are the usual paperwork that are required to substantiate the reimbursement requests.

Specific Expenses: There are plans that are designed to just cover one limited service such as just dental, just vision, just orthodontia, just prescription medical and more. Copies of the receipt or copies of the bill that also identify the date when the service was rendered, total cost of the service and the provider of the service can be used to request for reimbursement.

More Facts About Heath Reimbursement Arrangements

 One thing that should be known about the HRA is that these are merely notional arrangements. There are no funds that must be considered as expenses, not until the reimbursements have been paid. Through the Health Reimbursement Arrangements, employers can reimburse the employees directly, but this is only after the medical expenses that were incurred by the employee have been approved.

There are Annual Limits for some Health Reimbursement Arrangements

 Like that of the HSA or the health savings account, there are limits to the over-all amount of cash that any employer contributes to specific HRAs. There are annual contributions of the employer for HRAs of small businesses and reach a cap that amounts to $4,950. This is for single employees. If the employee has a family, then the cap is $10,000.

As for the other HRAs, like the one-person HRA that is Stand-Alone and the Integrated HRA, the contributions on a yearly basis are limitless.

Eligible Expenses of Health Reimbursement Arrangement

 An HRA can be reimbursed at any expense and is also regarded as an eligible medical cost as stated under Section 213 of the IRS code. This includes the premiums for the health insurance coverage care of policies. It is also under the IRS guidelines that employers can restrict what can be reimbursed in whatever way the opt to especially since it is their health reimbursement arrangement plan.

HRAs Can Roll Over

 The HRA can also roll forward to the next month or even to the next year. It depends on the Health Reimbursement Arrangement Plan as chosen by the employer. The small businesses that have HRA can also roll forward to another month. The difference is that they cannot roll onward to the next year.

As for the Stand-Alone HRAs for a single individual or the Integrated HRAs, there are employers that let the balances accrue from one specific year and then onward to the next year. They can also design these programs in such a way that makes it not possible for the HRA to rollover annually.

Employers can let the employees access their HRA accounts when they retire.

Reporting Features of the Administration of the HRA

 The reporting features of the HRA administration require monitoring on real time. The liabilities, utilization and reimbursements have to be meticulously looked at. Employers can also change the plans and the benefits any time they want or they can cancel it altogether, as long as the HRAs of the Small Businesses are supplied to the employees and they are also informed ahead of time.

Discrimination Testing Along with the HIPAA

 The HIPAA is also known as the Act for the Accountability and Portability of Health Insurance. Plans should avoid discrimination especially concerning the employees. This includes looking into the plan’s parameters and the allocation of the funds. It must ensure all employees can have similar access to this particular funded account.

HRA is also for Retired Employees

 There are HRA plans that cover employees who are already retired, as well as their spouses and their tax dependents. Employers consider the HRA as the alternative to the traditional healthcare in a retirement home, which is actually more expensive.

What Happens to the Health Reimbursement Arrangements When Employee Resigns?

 Since the employer owns the account of the employee and the latter decides to leave the job that he gets from the employer, he may only be able to keep using it, once the employer decides to let him or the costs are qualified. If not, then the benefits end once the employee resigns and it’s only fair that it does.

If the individual is unsure whether the company and the employer offers HRA, the way to find out is to directly speak with the Human Resources Department and find out.

Discounted Kaiser Insurance for Small Business Owners

Our public accounting firm is focused on Small Business Owners and Individuals and many times new business owners ask us about the health insurance.   Most of us live in Bay Area and prefer  “Kaiser” as a  health care provider and therefore I gathered some basic information about Kaiser health care plans for small business owners.

Kaiser offers many health care plans but one that suites the need of small business owners is called “GROUP POLICY”.  You can buy this group policy in two flavors.  One with annual deductible and one with no annual deductible.

Plan with annual deductibles cost about $250-$300 less than the non-deductible plans.  Both policies cover doctors visit and other services offered by Kaiser.  Both plans have minimum out of pocket doctor’s visit cost but the key difference is that with annual deductible plan you have to pay the minimum deductible ($1500) before your major benefits kick in.   For example,  daily rate for hospital room may be $500/night and you will have to pay for 3 nights before your insurance pays.  However with non-deductible plans you won’t be required to pay for these three days.

So, if you and your employees are in fairly healthy and won’t be needing any major services than you can opt for deductible plan and save a significant amount on monthly basis.

How about Spouse and kids ?

Yes, off course your employees along with officers/owners of the company can also enroll their dependents including kids and spouse.  Most polices don’t allow to include your parents.

What are the requirements of this kind of policy ?

  • You must have a business in good standing.
  • You must have two or more people enrolling in the policy.
  • More than 50% of all eligible person should have an insurance.

Can I get tax deduction for the health policy ?

You can read my post about health care policy deduction for more details.

How much does the policy cost?

I found the group policy of very good value.   Rate very by age but here is a simple example. Female less than 30 years old can get this kind of policy for about $300.  Not Bad ?

How can I enroll for group policy ?

Simply call Kaiser and ask for enrolling in group policy.

Don’t Miss Out on the Small Business Health-Care Tax Credit

I am sure you won’t mind taking some more business tax credits.   Here is another tax credit, if you are a small business employer with less than 25 employees who are earning average wage of less than $50,000 a year and you pay at least 50% of the employee’s insurance premiums.

This tax credit is targeted towards tax exempt organizations and small businesses.  This credit allows small business owners to offer health insurance for the first time.

Here is the scope of health insurance tax credit:

  • You take this credit as part of the general business credit.  You can use the form 3800 and any unused general Business Credit, would be included with the tax return.  This unused credit can be carried back one year and then forward for up to 20 years.
  •  You must have less than 25 full time employees.  Number of employees is calculated by calculating total number of hours and total number of employees.
  • Average annual wage should also be less than $50,000.  Once again, this is calculated based upon FICA wages and total number of full time employees.
  • Tax credit is for Small Business Owners or Tax-Exempt Organization.
  • Businesses who can’t take credit for 2011 may be eligible to take advantage in future years.  Small employers can claim this credit between 2010 to 2015.

Now the question you are waiting for, How much tax credit?

Maximum credit for small business employers is 35% of premiums paid.  For tax exempt employers the maximum tax credit is 25% of premium paid.

Want more good news?

Beginning in the year 2014, the tax credit will go up to 50% of premiums paid and 35% for tax exempt organizations.

Please note tax credit is on the amount you pay for health care premiums.  Credit is not on employee paid premium.   With up to 50% tax credit, I am sure you would love to offer healthcare for your employees.

Want to take credit this year? Call our office for an appointment.