First you must have a Consumer Driven Health Plan (CDHP's), also known as an HSA compliant insurance policy. Having a CDHP
allows you to open up a Health Savings Account (HSA) where you, and
your employer, can contribute non taxable money for future medical
expenses. With these plans everything is subject to the deductible,
except your annual wellness benefit, which used to be called your
annual physical. You are expected to pay for all of your medical
services out of your own pocket (your HSA) until you reach your
deductible.
Advantages of an HSA
Security Your high deductible insurance and 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 and that is HSA compatable.
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) (this may be changing)
Out-of-pocket expenses when covered by
Medicare
Long-term care expenses and insurance
Savings You can
save the money in your HSA 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 HSA. 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 Which investments to make
Portability Accounts are completely portable, meaning you can keep your HSA even if
you: Change jobs Change your medical coverage Become unemployed Move to another state 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 HSAs.
Tax Savings An
HSA provides you triple tax savings:
(1) Tax deductions when you contribute to your HSA;
(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 HSA. If you are not married, the account will
no longer be treated as an HSA upon your death. The account will pass
to your beneficiary or become part of your estate (and be subject to
any applicable taxes).
Opening Your HSA
Banks, credit unions, insurance companies and other financial
institutions are permitted to be trustees or custodians of these accounts. Other financial institutions that handle
IRAs or Archer MSAs are also automatically qualified to establish HSAs
Need More Information
about HSA's?
The U.S. 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. Treasury's HSA website can be found through
www.treas.gov
HSA
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. HSAs were signed into law by President Bush on December 8,
2003.
Who Can Have an HSA Any adult can contribute to an HSA if they: Have coverage under an 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 long term care insurance are permitted). Are not enrolled in Medicare. Cannot be claimed as a dependent on someone
else's tax return.
Contributions to your 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. (This may be changing) 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 an HSA qualified high deductible health
plan (HDHP) to open and contribute to an 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:
$5,600 -- Self-only coverage
$11,200 -- 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.
HSA Contributions
You can make a contribution to your HSA each year that you are
eligible. For 2008, you can contribute up to $2,900 if you have Self-only coverage and $5,800 if
you have Family coverage. Individuals age 55 and older can also make additional catch-up
contributions. The maximum annual catchup contribution is as follows: 2008 - $900
2009 and after - $1,000
Determining Your Contribution
Your eligibility to contribute to an 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)((this may be revised-
check back in March)). For years after 2006 a special rule allows you
to contribute the maximum amount for the year as long as you have
coverage for December. However, if you fail to remain covered for 2008,
the extra contribution above the pro rated amount is included in income
and subject to an additional 10 percent tax.
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. 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.
You can use the money in the HSA 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 covered 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. 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.
