President Bush signed into law on Dec. 8 a Medicare reform bill that could mean extra healthcare benefits for contractors and their employees.
Beginning Jan. 1, the law allows employers who have high-deductible healthcare plans to offer “health savings accounts,” known as HSAs, to employees under 65. Employers, employees and family members can make contributions to the HSA account tax free, and the funds are not forfeited if the amounts are not used up by the end of the plan year. What is not used stays in the account and continues to collect interest on a tax-favored basis to supplement retirement, similar to an IRA. Earnings and distributions used for medical expenses are tax-free.
HSAs provide coverage for accidents, disability, dental care, vision care, long-term care, preventive care services, prescription drugs, Medicare expenses and retiree expenses. The accounts are designed in part to help consumers pay for small health expenses until insurance benefits kick in.
Self-only policies must have a minimum deductible of $1,000 with a $5,000 cap on out-of-pocket expenses, and family policies have a minimum deductible of $2,000 with a $10,000 cap on out-of-pocket expenses. However, preventive care services and coverage for accidents, disability, dental care, vision care and long-term care are not subject to a deductible.
Contractors who are interested in making an HSA plan available to their employees might have to wait longer than Jan.1. Self-employed people can open up an HSA for themselves on that date, but employers must wait until the next medical-plan enrollment period begins.