What is a Health Savings Account (HSA)?
The result of Title XII of the Medicare Prescription Drug Improvement and Modernization Act of 2003, an HSA is a consumer-oriented, tax advantaged savings account that is always combined with an HDHP and is:
- Portable
- Accessible to consumers
- A true cash account
- An interest-bearing account, similar to an Individual Retirement Account (IRA)
- Established for eligible consumers by employers, their employees, or the individuals themselves
- An account whose balance rolls over year after year
- Not required to be funded every year
What is a qualified High Deductible Health Plan (HDHP)?
An HSA-qualified HDHP is a health plan with the following characteristics:
- For 2008, minimum deductible of $1,100 for individual coverage and $2,200 for family coverage.
- For 2008, annual out-of-pocket (including deductibles and co-insurance) not exceeding $5,600 for individual coverage and $11,200 for family coverage
- The above limits are indexed annualy for inflation
What are the eligibility requirements regarding the establishment of HSAs?
In addition to participating in an HDHP, the following conditions must be met to establish an HSA:
- Consumer does not have health benefits from another health plan
- Consumer is not eligible to be claimed as a dependent on another's tax return
- Consumer is not entitled to receive Medicare benefits
Who can make contributions to an HSA?
Individuals, family members, and employers may make contributions to an eligible individual's HSA. Consumers aged 55-65 may make additional "catch-up" contributions of up to $900 in 2008, increasing to $1,000 annually in 2009 and thereafter. Catch-up contributions help consumers accumulate funds for future health care expenses.
How much can be contributed to an HSA?
Contributions are allowed up to limits set by the Internal Revenue Service. For 2008, the maximum annual contribution is $2,900 for an individual plan and $5,800 for a family plan. These maximum annual contributions are indexed for inflation each year.
What are some advantages to an HSA?
An HSA has many advantages including:
An HSA can help a consumer invest for future health care expenses, since the money in the HSA can be used for:
- Services that may not be covered by a future health plan
- Medical expenses during periods of unemployment
- Medical expenses during retirement entitlement
- Insurance coverage after Medicare entitlement (except Medigap)
- Out-of-pocket expenses for Medicare
- Qualified long-term care expenses
- Dental and/or vision expenses, even if these charges are not covered by your HDHP.
An HSA gives a consumer more choices, such as:
- How much to contribute
- How much to use for qualified medical expenses
- Which medical expenses to pay from the savings account
- What types of investments to grow the savings account
An HSA is portable, so a consumer has control of the account regardless of:
- Whether the consumer is employed
- Where the consumer is employed
- Whether the consumer moves across state lines
- The consumer's age
- The consumer's future medical coverage
With the HSA, there's no "use it or lose it" rule. Therefore, a consumer doesn't feel a "time crunch" when spending the health care dollars.This encourages an individual to shop around for the best value and invest for future health care expenses.
HSA Eligible Expenses by HSA Bank
