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What is a Health Savings Account?
A Health Savings Account (HSA) is an account that you can put money into to save for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment. Health Savings Accounts (HSAs) were signed into law by President Bush on December 8, 2003.
Who Can Have an HSA?
Any adult can contribute to a Health Savings Account (HSA) if they: Have coverage under a Health Savings Account (HSA) qualified "high deductible health plan"(HDHP), have no other first-dollar medical coverage (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or longterm care insurance are permitted), are not enrolled in Medicare and cannot be claimed as a dependent on someone else's tax return. Contributions to your Health Savings Account (HSA) can be made by you, your employer or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return. Contributions to the account must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it pay for medical expenses tax-free.
High Deductible Health Plans (HDHPs)
You must have coverage under a Health Savings Account (HSA) qualified high deductible health plan (HDHP) to open and contribute to aHealth Savings Account (HSA). Generally, this is health insurance that does not cover first dollar medical expenses. Federal law requires that the health insurance deductible be at least: $1,100* -- Self-only coverage $2,200* -- Family coverage. In addition, annual out-of-pocket expenses under the plan (including deductibles, co-pays, and co-insurance) cannot exceed: $5,500* -- Self-only coverage $11,000* -- Family coverage. In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for preventive care services on a first-dollar basis (with or without a co-pay). "Preventive care" can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, pap smears, etc.
Finding HDHP Coverage
Any company that sells health insurance coverage in your state may offer HDHP policies. Let us help you find the right plan, the right company and at the right price!
HSA Contributions
You can make a contribution to your Health Savings Account (HSA) each year that you are eligible. You can contribute up to the amount of your HDHP deductible but no more than: $2,850* -- Self-only coverage $5,650* -- Family coverage *2007 amounts; adjusted annually for inflation. Individuals age 55 and older can also make additional catch-up contributions. The maximum annual catchup contribution is as follows:
2007 - $800
2008 - $900
2009 and after - $1,000
Determining Your Contribution
Your eligibility to contribute to a Health Savings Account (HSA) is determined by the effective date of your HDHP coverage. If you do not have HDHP coverage for the entire year, you will not be able to make the maximum contribution. All contributions (including catch-up contributions) must be pro-rated. Your annual contribution depends on the number of months of HDHP coverage you have during the year (count only the months where you have HDHP coverage on the first day of the month). Contributions can be made as late as April 15 of the following year.
Using Your HSA
You can use the money in the account to pay for any "qualified medical expense" permitted under federal tax law. This includes most medical care and services, and dental and vision care, and also includes over-the-counter drugs such as aspirin. You can generally not use the money to pay for medical insurance premiums, except under specific circumstances, including: Any health plan coverage while receiving federal or state unemployment benefits, COBRA continuation coverage after leaving employment with a company that offers health insurance coverage, qualified long-term care insurance, Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance for:
�� Part A (hospital and inpatient services)
�� Part B (physician and outpatient services)
�� Part C (Medicare HMO and PPO plans)
�� Part D (prescription drugs)
You can use the money in the account to pay for medical expenses of yourself, your spouse, or your dependent children. You can pay for expenses of your spouse and dependent children even if they are not covovd by your HDHP. Any amounts used for purposes other than to pay for "qualified medical expenses" are taxable as income and subject to an additional 10% tax penalty. Examples include: Medical expenses that are not considered "qualified medical expenses" under federal tax law (e.g., cosmetic surgery), other types of health insurance unless specifically described above, Medicare supplement insurance premiums and expenses that are not medical or health-related. After you turn age 65, the 10% additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional 10% penalty.
Advantages of HSAs
Security - Your high deductible insurance and Health Savings Account (HSA) protect you against high or unexpected medical bills.
Affordability - You should be able to lower your health insurance premiums by switching to health insurance coverage with a higher deductible.
Flexibility - You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account 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 and long-term care expenses and insurance.
Savings - You can save the money in your account for future medical expenses and grow your account through investment earnings.
Control - You make all the decisions about: How much money to put into the account, whether to save the account for future expenses or pay current medical expenses, which medical expenses to pay from the account, which company will hold the account, whether to invest any of the money in the account and which investments to make.
Portability - Accounts are completely portable, meaning you can keep your Health Savings Account (HSA) even if you: Change jobs, change your medical coverage, become unemployed, move to another state or change your marital status.
Ownership - Funds remain in the account from year to year, just like an IRA. There are no "use it or lose it" rules for Health Savings Accounts (HSAs).
Tax Savings - a Health Savings Account (HSA) provides you triple tax savings: (1) tax deductions when you contribute to your account; (2) tax-free earnings through investment; and, (3) tax-free withdrawals for qualified medical expenses.
What Happens to My HSA When I Die?
If your spouse becomes the owner of the account, your spouse can use it as if it were their own Health Savings Account (HSA). If you are not married, the account will no longer be treated as a Health Savings Account (HSA) upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).
Need More Information about HSAs?
Treasury's web site has additional information about Health Savings Accounts, including answers to frequently asked questions, related IRS forms and publications, technical guidance, and links to other helpful web sites. Treasuryıs HSA website can be found through www.treas.gov (click on Health SavingsAccounts) or directly at the following address: http://www.treas.gov/offices/public-affairs/hsa/.
* Information has been taken from The Department the Treasury website.
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