Health Savings Accounts

What is an HSA?

HSA stands for Health Savings Account. Health Savings Accounts were created as part of the Medicare Prescription Drug Improvement and Modernization Act and signed into law by President Bush in December 2003. An HSA is an account established to receive contributions for use in paying or reimbursing qualified medical expenses.

Who is eligible for an HSA?

An eligible individual is:

• Covered under a high-deductible health plan (HDHP)
• Not covered by another health plan that is not an HDHP
• Not enrolled in Medicare
• Not claimed as a dependent

What is an HDHP?

In order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,000 (self-only coverage) or $2,000 (family coverage). The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,100 (self-only coverage) or $10,200 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and copays & coinsurance) for non-network services.

Who contributes to an HSA?

Contributions to HSAs can be made by you, your employer, or both. Total annual HSA contributions cannot exceed the deductible of your HDHP. For example, if you choose a plan with a deductible of $1,000, you may not deposit more than $1,000 in your HSA for that year. If your employer contributes some of the money, you can make up the difference. Contributions to your HSA can be made in a lump sum or periodically in lesser amounts. Also, individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare.

What are the tax benefits of an HSA?

As long as they are used to pay qualified medical expenses, distributions from the HSA account are tax free. Interest accumulates tax deferred until age 65. After age 65, individuals can continue to use their HSA savings for medical expenses tax free, or withdraw them for non-qualified expenses at normal tax rates. A tax or legal professional should be consulted for complete guidance.