Health Savings Account - Frequently Asked Questions

 

What is a Health Savings Account ("HSA")?

What is a "High Deductible Health Plan" (HDHP)?

How do I get a Health Savings Account?

How much does a HSA cost?

Who is eligible for a HSA?

Can I get a HSA even if I have other insurance that pays medical bills?

Does the HDHP have to be in my name to open a HSA?

If I'm on Medicare, can I have a HSA?

I'm active-duty military and have Tricare coverage, can I have a HSA?

My employer offers an FSA, can I have both an FSA and a HSA?

I don't have a job, can I get a HSA?

Does my income affect whether I can get a HSA?

How much can I contribute annually to an HSA?

Do my HSA contributions have to be made in equal amounts each month?

Can my employer contribute to my HSA?

Do my contributions provide any tax benefits?

If my employer contributes to my HSA, does that also provide me any tax benefits?

Can I make contributions through my employer on a pre-tax basis?

Does an HSA pay for the same things that regular insurance pays for?

How do I know what is included as qualified medical expenses?

Who decides whether the money I'm spending from my HSA is for a qualified medical expense?

What happens if I don't use the money in the HSA for medical expenses?

Are dental and vision care qualified medical expenses under a Health Savings Account?

Can I use the money in my HSA to pay for medical care for a family member?

Can I use my HSA to pay for medical services provided in other countries?

Can I pay my health insurance premiums with an HSA?

Can I purchase long-term care insurance with money from my HSA?

I have an HSA but no longer have HDHP coverage. Can I still use the money that is already in the HSA for medical expenses tax-free?

Do unused funds in a Health Savings Account roll over year after year?

What happens to the money in a Health Savings Account after you turn age 65?

Can I use my HSA to pay for medical expenses incurred before I set up my account?

How do I use my HSA to pay my physician when I'm at the physician's office?

What do I have to do to "establish" my account?

Who can help me establish my account?

My bank/credit union doesn't offer HSAs, can I be my own trustee or custodian?

What is the difference between an HSA "custodian" and an HSA "trustee"?

Can couples establish a joint account and both make contributions to the account, including "catch-up" contributions?

Must couples open separate accounts?

How soon can I open my account?

I want to make sure my HSA is "established" as soon as possible. Can I establish my account before my HDHP coverage begins?

Who has control over the money invested in a Health Savings Account?

Can the funds in an HSA be invested?

Will my bank notify me if I've exceeded my allowable contribution amount?

Can I borrow against the money in my HSA?

Can I roll the money in a Health Savings Account over into an IRA?

Can I roll over an IRA, 401(k) or other retirement plan into an HSA?

What happens to the money in my HSA when I die?

The HSA Basics

What is a Health Savings Account ("HSA")?

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 be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account. You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.

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 2007, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,100 (self-only coverage) or $2,200 (family coverage). The annual out-of-pocket (including deductibles and co-pays) for 2007 cannot exceed $5,500 (self-only coverage) or $11,000 (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.

How can I get a Health Savings Account?

Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for employees as well.

How much does a HSA cost?

An HSA is not something you purchase; itýs a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA.

 

HSA Eligibility

Who is eligible for a HSA?

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" (see below) and will not jeopardize your eligibility for an HSA.

Can I get a 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.

Does the HDHP have to be in my name to open a HSA?

No, the policy does not have to be in your name. As long as you have coverage under the HDHP policy, you can be eligible for an HSA (assuming you meet the other eligibility requirements for contributing to an HSA). You can still be eligible for an HSA even if the policy is in your spouse's name.

If I'm on Medicare, can I have a 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.

I'm active-duty military and have Tricare coverage, can I have a HSA?

At this time, Tricare does not offer an HDHP options so you are not eligible for an HSA.

My employer offers an FSA, can I have both an FSA and a HSA?

You can have both types of accounts, but only under certain circumstances. General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA. If your employer offers a "limited purpose" (limited to dental, vision or preventive care) or "post-deductible" (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.

I don't have a job, can I get a HSA?

Yes, if you have coverage under an HDHP. You do not have to have earned income from employment - in other words, the money can be from your own personal savings, income from dividends, unemployment or welfare benefits, etc.

Does my income affect whether I can get a 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.

 

Contributing to Your HSA

How much can I contribute annually to an HSA?

For 2008, the maximum annual HSA contribution is $2900 for single coverage and $5800 for family coverage

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.

Can my employer contribute to my HSA?

Contributions to HSAs can be made by you, your employer, or both. All contributions are aggregated to determine whether you have contributed the maximum allowed. If your employer contributes some of the money, you can make up the difference.

Do my contributions provide any tax benefits?

Your personal contributions offer you an "above-the-line" deduction. An "above-the-line" deduction allows you to reduce your taxable income by the amount you contribute to your HSA. You do not have to itemize your deductions to benefit. Contributions can also be made to your HSA by others (e.g., relatives). However, you receive the benefit of the tax deduction.

If my employer contributes to my HSA, does that also provide me any tax benefits?

If your employer makes a contribution to your HSA, the contribution is not taxable to you the employee (excluded from income).

Can I make contributions through my employer on a pre-tax basis?

If your employer offers a salary reduction plan (also known as a Section 125 plan or cafeteria plan), you (the employee) can make contributions to your HSA on a pre-tax basis (i.e., before income taxes and FICA taxes). If you can do so, you cannot also take the "above-the-line" deduction on your personal income taxes.

 

Using Your HSA

Does an HSA pay for the same things that regular insurance pays for?

HSA funds can pay for any "qualified medical expense", even if the expense is not covered by your HDHP. For example, most health insurance does not cover the cost of over-the-counter medicines, but HSAs can. If the money from the HSA is used for qualified medical expenses, then the money spent is tax-free.

How do I know what is included as qualified medical expenses?

Review our List of the Most Common Qualified Medical Expenses, courtesy of First American Bank. For further information, refer to IRS publication 502.

Who decides whether the money I'm spending from my HSA is for a qualified medical expense?

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.

Are dental and vision care qualified medical expenses under a Health Savings Account?

Yes, as long as these are deductible under the current rules. For example, cosmetic procedures, like cosmetic dentistry, would not be considered qualified medical expenses.

Can I use the money in my HSA to pay for medical care for a family member?

Yes, you may withdraw funds to pay for the qualified medical expenses of yourself, your spouse or a dependent without tax penalty. This is one of the great advantages of HSAs.

Can I use my HSA to pay for medical services provided in other countries?

Yes.

Can I pay my health insurance premiums with an HSA?

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.

Can I purchase long-term care insurance with money from my HSA?

Yes, if you have tax-qualified long-term care insurance. However, the amount considered a qualified medical expense depends on your age. See IRS Publication 502 for the amounts deductible by age.

I have an HSA but no longer have HDHP coverage. Can I still use the money that is already in the HSA for medical expenses tax-free?

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.

Do unused funds in a Health Savings Account roll over year after year?

Yes, the unused balance in a Health Savings Account automatically rolls over year after year. You won't lose your money if you don't spend it within the year.

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 a 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.

Can I use my HSA to pay for medical expenses incurred before I set up my account?

No. You cannot reimburse qualified medical expenses incurred before your account is established. We recommend you establish your account as soon as possible.

How do I use my HSA to pay my physician when I'm at the physician's office?

If you are still covered by your HDHP and have not met your policy deductible, you will be responsible for 100% of the amount agreed to be paid by your insurance policy to the physician. Your physician may ask you to pay for the services provided before you leave the office. If your HSA custodian has provided you with a checkbook or debit card, you can pay your physician directly from the account. If the custodian does not offer these features, you can pay the physician with your own money and reimburse yourself for the expense from the account after your visit. 

If your physician does not ask for payment at the time of service, the physician will probably submit a claim to your insurance company, and the insurance company will apply any discounts based on their contract with the physician. You should then receive an "Explanation of Benefits" from your insurance plan stating how much the negotiated payment amount is, and that you are responsible for 100% of this negotiated amount.  If you have not already made any payment to the physician for the services provided, the physician may then send you a bill for payment.

 

Establishing Your HSA

What do I have to do to "establish" my account?

Your account trustee/custodian will determine what you need to do, which may include completing and processing appropriate paperwork, and making a minimum deposit.

Who can help me establish my account?

Insured banks and credit unions are automatically qualified to handle HSAs. Any bank, credit union or any other entity that currently meets the IRS standards for being a trustee or custodian for an IRA or Archer Medical Savings Account (MSA) can be an HSA trustee or custodian. The law also allows insurance companies to be HSA trustees or custodians.

My bank/credit union doesn't offer HSAs, can I be my own trustee or custodian?

No, you must establish your HSA with an approved institution.

What is the difference between an HSA "custodian" and an HSA "trustee"?

The differences between a "custodian" and a "trustee" are minor. A trust is a legal entity under which assets are actually owned and held on behalf of a beneficiary. The trustee has some level of discretionary fiduciary authority over the assets of the fund. The trustee must exercise that authority in the best interests of the beneficiary. A custodial arrangement, on the other hand, is like a trust, but the custodian simply holds the assets on behalf of the owner of the assets. Other than holding the assets and doing as the owner orders, the custodian has no fiduciary obligations to the owner. The determination of what constitutes a trust or custodial arrangement is a determination made under state law.

Can couples establish a joint account and both make contributions to the account, including "catch-up" contributions?

Joint HSA accounts are not permitted. Each spouse should consider establishing an account in their own name. This allows you to both make catch-up contributions when each spouse is 55 or older.

Must couples open separate accounts?

 If both husband and wife are eligible to contribute to an HSA, they are both eligible to establish separate HSAs. However, if both spouses want to make "catch-up" contributions when they are age 55+, they must establish separate accounts.

How soon can I open my account?

Your account can be established as early as the effective date of your HDHP coverage. However, if your coverage begins on any day other than the first day of the month, you cannot establish your account until the first day of the following month.

I want to make sure my HSA is "established" as soon as possible. Can I establish my account before my HDHP coverage begins?

You can complete all the paperwork and make a minimum deposit to your account prior to the effective date of your HDHP coverage. However, your account is not officially established until your HDHP coverage begins. But completing the necessary steps before your coverage begins ensures that your HSA will be established as early as possible. This is especially important when your HDHP coverage is effective on a non-business day.

 

Managing Your HSA

Who has control over the money invested in a Health Savings Account?

The account holder controls all decisions over how the money is invested. You can also choose not to invest your funds.

Can the funds in an HSA be invested?

Yes, you can invest the funds in your HSA. The same types of investments permitted for IRAs are allowed for HSAs, including stocks, bonds, mutual funds, and certificates of deposit.

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.

Can I borrow against the money in my HSA

No. You may not borrow against it or pledge the funds in it. For more information on prohibited activities, see Section 4975 of the Internal Revenue Code.

Can I roll the money in a Health Savings Account over into an IRA?

You cannot roll the HSA funds over into an IRA. They will stay in the HSA or be rolled into another HSA.

Can I roll over an IRA, 401(k) or other retirement plan into an HSA?

An individual can now make a one-time, irrevocable transfer from an IRA to an HSA.  The transfer does count against the annual contribution maximum and requires the individual to be in an HSA-eligible HDHP for a period of 12 months after this transfer is complete.

What happens to the money in my HSA when I die?

What happens depends on how the HSA is designed.  If your spouse is designated as the beneficiary by you, your spouse becomes the owner of the HSA when you die. If you provide that it goes to your estate or other entity, the value of the HSA at death is income to the estate or other entity.

 

 

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