Frequently Asked Questions
What
is a Health Savings Account?
Health Savings Accounts (HSAs) are investment accounts
designed to help individuals save for qualified medical and retirement
health expenses (as defined by the IRS) on a tax-advantaged basis.
Any adult who is covered by a qualified high deductible
health plan (HDHP), and is not covered by any other plan that provides
any of the same benefits as the qualified
HDHP, may establish an HSA. Created by the Medical Prescription,
Improvement and Modernization Act of 2003, and signed
by President Bush on December 8, 2003, HSAs are designed to help
individuals save for qualified medical and retirement
health expenses as well as for businesses to be able to provide
affordable health insurance plans with income tax benefits.
HSAs are portable, the account can travel with
an employee from job to job, and funds can accumulate without the
annual use it- or-lose-it requirement of a Flexible Spending Account,
enabling contributions and earnings to accrue tax-free, just like
an Individual Retirement Account (IRA). Funds distributed from the
HSA are not taxed if they are used to pay qualified medical expenses.
To encourage saving for health expenses after retirement, individuals
age 55 and older are allowed to make additional catch-up contributions
to their HSAs.
Who
can have an HSA?
Anyone covered by a high-deductible health plan
who is not covered by another health insurance plan, including
Medicare, and is not claimed as a dependent on another person's tax return is
eligible to establish an HSA. Qualified high-deductible health plans are those with a minimum
deductible of $1150 for individuals (annual deductible plus out-of-pocket expenses cannot exceed $5800) or $2300 for families (annual deductible plus out-of-pocket expenses cannot exceed $11,600).
Can
self-employed individuals have an HSA?
HSAs are often advantageous for the self-employed and for sole
proprietors because:
-
High-deductible health insurance plans generally have modest
premium costs.
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The individual is protected against potentially catastrophic
healthcare expenses.
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The HSA may serve the dual purpose of providing
for both medical and retirement expenses.
What
are the benefits of an HSA?
You, your employer, or both may contribute to your
HSA. However, the total contributions are limited annually. The
maximum
contribution is $3000 for individuals, $5950 for families, or the
amount of the health plan deductible, whichever is less. (Dollar
amounts are adjusted for inflation each year.)
-
Distributions can
be used for qualified medical expenses such as medical services,
hospital costs, prescription drugs, dental and vision care, long-term
care insurance and health insurance premiums during any period
of unemployment.
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Spouses or dependents can also use the money
for qualified, un-reimbursed medical expenses.
-
Unspent balances accumulate year after year.
What
are the advantages of an HSA?
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Security - Protect
against high or unexpected medical bills.
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Affordability - Switching
to health insurance with a higher deductible lowers health insurance
premiums.
-
Flexibility - Use funds from the account to pay for
current medical expenses, including those not covered by insurance,
and future needs.
-
Savings - Grow your account through investment
earnings.
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Control - You decide about how much to put into the
account, which institution will hold the account, and which investments
to make.
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Portability - Keep your HSA even through changes in
employment, medical coverage, marital status, and state residency.
-
Ownership - Funds remain in the account from year to year, just like an
IRA. There are no “use-it-or-lose-it” rules.
-
Tax
Savings - Contributions are tax-deductible, and earnings and
withdrawals for qualified medical expenses are tax-free.
Can
HSA money be used for non-medical expenses?
If distributions from an HSA are used for non-medical
expenses, the amounts will be taxed and subject to an additional
10% tax penalty. Those not subject to the 10% penalty include: people
age 65 and older, disabled persons, and those who inherit an HSA
upon the death of the account holder.
To learn more, determine your eligibility, or to apply online, visit our interactive, online HSA Service Center. |
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