Unit 22 - Taxation of Health Insurance

Question 1

The tax treatment of an individual or group health plan depends on:

Answer 1

• Who is paying the premiums; and
• the type of plan

Question 2

Health Savings Accounts (HSA)

Answer 2

A tax-advantaged medical savings account availabl to taxpayers enrolled in a high-deductible health plan (HDHP)

• contributions to HSA are tax-deductible;
• earnings in the HSA grow tax-deferred; and
• HSA distributions are tax-free when used to pay qualified medical expenses

Question 3

Distributions for HSA

Answer 3

• Funds roll over and accumulate year to year if not spent
• Distributions other than qualified medical expenses are subject to income tax and a 20% penalty
  
  • Exceptions: account beneficiary has died, become disabled, or is age 65 or older.

Question 4

Individuals are eligible to establish an HSA if they:

Answer 4

• have no other comprehensive medical expense coverage, including Medicare (they have a limited benefit plan, disability income, or long-term care insurance)
• cannot be claimed as a dependent on another person’s tax return; and
• are enrolled in a High-Deductible Health Plan (HDHP)

Question 5

Health Reimbursement Accounts (HRA)

Answer 5

• Established by the employer
• Employer contributions are pretax
• HDHP not required
• Employee can use money in the HRA to pay deductibles, coinsurance and co-payments
• Money rolls over from year to year

Question 6

What is also known as a cafeteria plan?

Answer 6

FSA - Flexible Spending Account