Make Your Own Healthcare Decisions

Employee Benefits is providing information on the Health Savings Account (HSA) that will be available to Consumer-Directed Health Plan (CDHP) members beginning Jan. 1, 2009. This is the second in a series of articles on HSAs.

When making decisions about healthcare, no two people are exactly alike. With an HSA, the retiree has control and flexibility when it comes to making decisions about healthcare expenses.

An HSA is a special tax-advantaged account that puts the retiree in control over how his or her healthcare dollars are spent. The accounts are individually-owned, so the retiree chooses when to use the HSA and how to invest the HSA funds. The retiree also chooses whether to use funds now to pay for qualified out-of-pocket medical expenses, or pay for current expenses with after-tax dollars and save the money in the HSA for retirement or future medical costs.

Either way, the money is the retiree’s (i.e., the account owner) − and the retiree makes the decisions.

The following three important tax benefits are associated with an HSA:

HSA contributions are 100-percent tax-deductible, reducing total taxable income.
Investment earnings on HSA funds are tax-free, making the HSA a valuable savings vehicle.
Funds can be withdrawn tax-free at any time to pay for qualified medical expenses incurred by the retiree, his or her spouse, or dependents.

After age 65, HSA funds can be withdrawn penalty-free to pay for non-medical expenses, and only regular income tax on the amount withdrawn is applied.

Contributing to an HSA

The HSA will be serviced by First Horizon Msaver, a subsidiary of First Tennessee Bank National Association. TVA will make contributions of $500/individual or $1,000/family to each retiree’s HSA after the retiree opens the account.

The retiree decides whether or not to contribute to the HSA. Retirees can make tax-deductible contributions to their HSA by mailing contributions using deposit slips from their HSA checkbook or automatically transferring monthly contributions from a personal checking or savings account. Provided all eligibility requirements are met, retirees can begin making contributions to their HSA as soon as the account is established.

Annual contribution limits are mandated by the Internal Revenue Service and are adjusted annually for inflation. In 2009, contribution limits (from all sources) are $3,000 for individuals with individual coverage and $5,950 for individuals with family coverage. Individuals age 55 and older who open an HSA can also make an additional “catch-up” contribution. In 2009, the catch-up contribution can be up to $1,000.

Retirees can continue to use the funds in their HSA for qualified medical expenses even if they discontinue enrollment in the CDHP in the future. However, since enrollment in a high-deductible plan is required in order to contribute to an HSA, retirees can no longer make contributions to their HSA when not enrolled in the CDHP.

Earning money on your HSA funds

Money in the HSA earns tax-free interest daily. First Horizon interest rates as of Aug. 28, 2008, are shown below. (Rates and yields are subject to change.)

Average daily balance: Interest rate: *APY:	$0 to $499.99 0.2497 percent .25 percent
Average daily balance: Interest rate: *APY:	$500 to $3,499.99 0.4989 percent .50 percent
Average daily balance: Interest rate: *APY:	$3,500 to $4,999.99 0.9954 percent 1.00 percent
Average daily balance: Interest rate: *APY:	$5,000 to $9,999.99 1.5884 percent 1.60 percent
Average daily balance: Interest rate: *APY:	$10,000 and over 2.9595 percent 3.00 percent

*Annual Percentage Yield. When a minimum daily balance is required to earn interest at a higher interest rate (in a “tiered rate” account) and this balance requirement is met, interest is paid at the higher rate on the entire balance in the account that day.

As account balances grow, First Horizon offers the following three ways for retirees to invest their money:

Mutual Fund Sweep Program − Funds exceeding $1,000 can be automatically moved from the interest-bearing account into mutual fund shares.
Self-Directed via Online Trading − Through an online account, an retirees can self-manage a portfolio of publicly traded stocks; an HSA balance of $3,000 and a minimum $2,000 investment is required.
Self-Directed via Trading Desk − Retirees can build and manage a portfolio of publicly traded stocks, bonds or mutual funds through First Tennessee’s trading desk; an HSA balance of $3,000 and a minimum $2,000 investment is required

Retirees will want to choose the method that best meets their investment style.

Future articles will explain more features of an HSA, how it works and what you can do to start your HSA. Retirees also can obtain responses to their questions by sending an e-mail to First Horizon at tvahsa@firsthorizon.com. A customer-service phone number for First Horizon will be made available within the next few weeks.