Health Savings Accounts (HSA)
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Health Savings Accounts (HSA)
What is a Health Savings Account (HSA)?
HSA is funded by an employer, employee, or individual. The HSA is used to help pay for cost sharing under the health
plan, and can also be used to pay for additional expenses not covered by the health plan (limited to *Section 213(d) eligible
expenses). Section 213(d)* is the part of the tax code that outlines eligible expenses for medical FSAs, as well as
MSAs and HSAs. Employers should consult with their tax advisor when considering Health Savings Accounts
or any other tax-preferred product.
The new Health Savings Accounts (HSA) provision in the Medicare bill
was signed into law by President Bush on December 8, 2003 and is effective January 1, 2004. HSAs are a replacement for
Medical Savings Accounts.
Availability - Individuals and any size group including
sole proprietors, members of an LLC, LLP, or individuals owning more than 2% of an S corp.
Maximum Contributions Each Calendar Year - Varies from year to year.
Limit is set for self only and family coverage. Contributions are prorated in 1/12th increments if the person is not
covered under a high deductible health plan the full 12 months of the year. Maximum contributions are subject to annual
cost of living adjustments. Contributions can be made at one time or in any number of installments, but no later than
the due date for the employee's federal income tax return.
Maximum - Varies from year to year on self only and family coverage. The deductibles and out-of-pockets
are subject to annual increases at renewal, based on the Consumer Price Index (CPI).
Additional Contribution Allowance - Account holders age 55 and up may make
additional contributions of $1000 per year. Married couples can make two catch-up contributions if both spouses
are at least 55.
- Individuals, employers and/or employees can contribute within the same calendar year.
Tax Deductibility - Employer - Contributions by the employer are
Tax Deductibility -
Employee - Contributions may be either pre-taxed if offered through a cafeteria plan or tax deductible.
Interest Earned - Interest earned on the funds in an
HSA accmulates tax-free.
Expenses - Funds may be withdrawn tax-free to pay for qualified medical expenses*, which include all section 213(d)*
expenses, except health insurance premium payments. HSA funds may be used to pay premiuims only for long-term care insurance,
COBRA continuation premiums, other health insurance premiums for people receiving unemployment benefits, or retiree premium
other than MediGap.
for reasons other than qualified medical expenses prior to age 65 are taxable and subject to a 10% penalty. Upon death,
disability, age 65 or upon Medicare eligibility, funds can be withdrawn for non-medical reasons without penalty, but the distributions
will be subject to income taxes. In the case of death or divorce, the account may be transferred to a spouse without
incurring taxes. If someone other than a spouse is the beneficiary, the funds will be treated as taxable income.
Fund or Account Ownership - The employee owns the fund.
Rollover of Funds - Yes.
Funding Required - Yes - Funds need to be deposited into an actual account
in order to pay the liability on a claim.
of Funds - As contributions are made.
Drugs - Subject to the deductible.
Care - Options vary by market segment.
Holder Responsibilities - It is up to each individual account holder to make sure that contributions to the HSA do
not go beyond the maximum limits. It is also the account holder's responsibility to make sure that his/her withdrawals
are for qualified medical expenses to meet tax deductibility requirements. These expenses are defined in Section 213(d)*
of the Internal Revenue Code.
are permitted from one HSA to another or from an MSA. There is a 60-day rollover rule. Only one rollover is permitted
in a 12-month period.
The funds will be held in a trust administered
by a bank, insurance company, or other approved administrator.