Health Savings FAQ
What is a Health Savings Account?
A Health Savings Account is an alternative to traditional health
insurance; it is a savings product that offers a different way
for consumers to pay for their health care. HSAs enable you to
pay for current health expenses and save for future qualified
medical and retiree health expenses on a tax-free basis. You
must meet eligibility requirements and have a qualified high
deductible health plan (HDHP).
What are the advantages of an HSA Account?
Your HSA in conjunction with your high deductible insurance plan protects you against high or unexpected medical bills.
You can use the funds in your account to pay for current medical expenses, including expenses your insurance may not cover, or save the money for future needs, such as:
- Health insurance or medical expenses, if unemployed
- Medical expenses after retirement (before Medicare)
- Out-of-pocket expenses when covered by Medicare
- Long-term care expenses and insurance
You can save the money in your account for future medical expenses and grow your account through investment earnings.
You make all the decisions regarding your accounts, including:
- How much money you contribute
- Whether you save the account for future expense or pay current medical expenses
- Which company holds the account
- Which medical expenses to pay from the account
Accounts are completely portable, which means you can keep your HSA if you change jobs, change your medical coverage, become unemployed or move to another state.
Funds remain in the account from year to year, just like an IRA. There are no
"use it or lose it" rules for HSAs.
- Tax Savings*
An HSA provides you triple tax savings:
- Tax deductions when you contribute to your account
- Tax-free earnings through investment
- Tax-free withdrawals for qualified medical expenses
- *Please contact your tax advisor for details.
Who is eligible for a Health Savings Account?
To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not an HDHP. Certain types of insurance are not
considered "health insurance" and will not jeopardize your eligibility for an HSA.
Can I get an HSA even if I have other insurance that pays medical bills?
You are only allowed to have auto, dental, vision, disability and long-term care
insurance at the same time as an HDHP. You may also have coverage for a specific disease or illness as long as it pays a specific dollar amount when the policy is
triggered. Wellness programs offered by your employer are also permitted if they
do not pay significant medical benefits.
What Is a "High Deductible Health Plan" (HDHP)?
You must have an HDHP if you want to open an HSA. Sometimes referred to as a "catastrophic" health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn't pay for the first several thousand dollars of health care expenses (i.e., your "deductible") but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover.
For 2011, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,200 (self-only coverage) and $2,400 (family coverage). The annual
out-of-pocket (including deductibles and co-pays) for 2012 cannot exceed $6,050 (self-only coverage) or $12,100 (family coverage). HDHPs can have first dollar
coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and co pays & coinsurance) for non-network services.
I don't have health insurance, can I get
You cannot establish and contribute to an HSA unless you have coverage under a HDHP.
I'm on Medicare, can I have an HSA?
You are not eligible for an HSA after you have enrolled in Medicare. If you had an HSA before you enrolled in Medicare, you can keep it. However, you cannot continue to make contributions to an HSA after you enroll in Medicare.
Contributing to an HSA
Does my income affect whether I can have an HSA?
There are no income limits that affect HSA eligibility. However, if you do not file a federal income tax return, you may not receive all the tax benefits HSAs offer.
How much can I contribute to my HSA each year?
For 2008 and forward, your maximum annual HSA contribution is based on the statutory limit for your type of coverage. For 2012, if you have self-only HDHP coverage, your contribution is $3,100; $6,250 if family HDHP, no matter what your HDHP. If you are age 55 or older, you can also make additional "catch-up" contributions.
Do my HSA contributions have to be made in equal amounts each month?
No, you can contribute in a lump sum or in any amounts or frequency you wish. However, your account trustee/custodian (bank, credit union, insurer, etc.) can impose minimum deposit and balance requirements.
I'm over 55 and would like to make catch-up contributions to my HSA, like I've
done with my IRA. Is that possible?
Yes, individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year in amounts set by the Department of Treasury until they enroll in Medicare. The additional "catch-up" contributions to HSA allowed are as follows:
2011 - $1,000
Using and Managing Your HSA
How do I know what is included as "qualified medical expenses"?
Unfortunately, we cannot provide a definitive list of "qualified medical expenses".
A partial list is provided in IRS Pub 502 (available at www.irs.gov). There have been thousands of cases involving the many nuances of what constitutes "medical care" for purposes of section 213(d) of the Internal Revenue Code. A determination of whether an expense is for "medical care" is based on all the relevant facts and circumstances. To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. The determination often hangs on the word "primarily."
Who decides whether the money I'm spending from my HSA is for a "qualified
You are responsible for that decision, and therefore should familiarize yourself with what qualified medical expenses are (as partially defined in IRS Publication 502) and also keep your receipts in case you need to defend your expenditures or decisions
during an audit.
What happens if I don't use the money in
the HSA for medical expenses?
If the money is used for other than qualified medical expenses, the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 10% tax penalty.
Will my bank notify me if I've exceeded
my allowable contribution amount?
No, it is your sole responsibility to keep track of the amounts deposited and spent from your account, just like a normal savings or checking account.
What happens to the money in a Health Savings Account after you turn age 65?
You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or "Medigap" policy.
Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 10% penalty on the amount withdrawn.
Need Information on Health Savings?
Visit The U.S. Department of the Treasury's website for additional
information including: a comprehensive listing of frequently asked
questions, related IRS forms and publications, technical guidance,
and link to other helpful websites. http://www.treasury.gov/resource-center/tax-policy/Pages/Health-Savings-Accounts.aspx