HSA Frequently Asked Questions

A Health Savings Account is a supplement 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 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.

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 2011, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,200 (self-only coverage), or $2,400 (family coverage). The annual out-of-pocket (including deductibles and co-pays) for 2011 cannot exceed $5,950 (self-only coverage) or $11,900 (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.

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.

An HSA is not something you purchase; it's 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.

An eligible individual is any individual who on the first day of a given month

• is covered under a high deductible health plan (HDHP),
• is generally not covered by any health plan that is not an HDHP,
• is not enrolled in Medicare, and
• cannot be claimed as a dependent on someone else's tax return.

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.

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.

You cannot establish and contribute to an HSA unless you have coverage under an HDHP.

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.

If you have received any health benefits from the Veterans Administration or one of their facilities, including prescription drugs, in the last three months, you are not eligible for an HSA.

At this time, TRICARE does not offer an HDHP option so you are not eligible for an 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 may still be eligible for an HSA.

You can have both types of accounts, but only under certain circumstances. General Health Reimbursement Arrangements (HRAs) 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) HRA, then you may still be eligible for an HSA. Or, if your employer contributes to an HRA that can only be used when you retire, you may still be eligible for an HSA.

You cannot have an HSA if your spouse's FSA or HRA can pay for any of your medical expenses before your HDHP deductible is met.

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.

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.

No, you cannot establish separate accounts for your dependent children, including children who can legally be claimed as a dependent on your tax return.

Yes, you are still eligible for an HSA. Your dependent's non-HDHP coverage does not affect your eligibility, even if they are covered by your HDHP.

Federal law states that annual contributions limits are $3,050 for singles/$6,150 for families in 2010 and 2011. Individuals aged 55+ may contribute an additional $1,000 for each tax year.

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.

Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account.

Last-month rule
Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most tax payers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month. However, if contributions were made to your HSA based on you being an eligible individual for the entire year under the last-month rule, you must remain an eligible individual during the testing period. For the last-month rule, the testing period begins with the last month of your tax year and ends on the last day of the 12th month following that month. For example, December 1, 2010 through December 31, 2011.

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.

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

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 do so, you cannot also take the "above-the-line" deduction on your personal income taxes.

You may be able to claim the medical expense deduction even if you contribute to an HSA. However, you cannot include any contribution to the HSA or any distribution from the HSA, including distributions taken for non-medical expenses, in the calculation for claiming the itemized deduction for medical expenses.

If you had HDHP coverage for the full year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year. If you did not have HDHP coverage for the full year, you must pro-rate your catch-up contribution for the number of full months you were eligible, (i.e., had HDHP coverage).

Yes, if both spouses are eligible individuals and both spouses have established an HSA in their name. If only one spouse has an HSA in their name, only that spouse can make a catch-up contribution.

Each spouse is eligible to contribute to an HSA in their own name, up to the annual contribution limit for self-only coverage. (Catch up contributions are in addition to this limit.)

The following examples describe how much can be contributed under varying circumstances. Assuming that neither spouse qualifies for catch-up contributions.

Example 1:
Husband and wife have family HDHP coverage. Husband has no other coverage. Wife also has non-HDHP self-only coverage. Wife is not eligible and cannot contribute to an HSA. Husband may contribute up to the annual contribution limit for family coverage.

Example 2:
Husband and wife have family HDHP coverage. Husband has no other coverage. Wife also has self-only HDHP coverage. Both husband and wife are eligible individuals. Husband and wife are treated as having family coverage only. The combined HSA contribution by husband and wife cannot exceed the annual contribution limit for family coverage.

Example 3:
Husband and wife have family HDHP coverage. Husband has no other coverage. Wife also has non-HDHP family coverage. Husband and wife are treated as having non-HDHP family coverage. Neither husband nor wife is an eligible individual and neither may contribute to an HSA.

Example 4:
Husband and wife have family HDHP coverage. Husband has no other coverage. Wife is enrolled in Medicare. Wife is not an eligible individual and cannot contribute to an HSA. Husband may contribute up to the annual contribution limit for the self-only coverage.

Tax filing status does not affect your contribution.

No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.

You are eligible to receive tax-free reimbursement for qualified medical expenses not covered by your insurance as definedby IRC Section 213(d). A list of these expenses is avaialble on the IRS website, www.irs.gov. HSA distriburtions used for any purpose other than the qualified medical expenses listed will be taxable and the appropriate tax rules will apply.

A qualified medical expense is one for medical care as defined by Internal Revenue Code Section 213(d). The expense must be primarily to alleviate or prevent a physical or mental defect or illness, including dental or vision. Most expenses for medical care will fall under IRC Section 213(d).

However, some expenses do not qualify:

• Surgery for purely cosmetic reasons
• Health club dues
• Illegal operations or treatments
• Maternity clothes
• Toothpaste, toiletries, and cosmetics

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.

If the money is used for non-qualified medical expenses, the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 20% penalty.

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

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.

Yes.

HSA money cannot generally be used to pay your insurance premiums. However, you may be able to 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.

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.

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.

Funds deposited into your HSA remain in your account and automatically roll over from one year to the next. You may continue to use the HSA funds for qualified medical expenses. Howevery, you are no longer eligible to contribute to an HSA for months that you are not covered by an HDHP.

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.

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 "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 penalty on the amount withdrawn.

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

It is your responsibility to keep track of your deposits and expenditures and keep all of your receipts. If you run out of HSA funds (and therefore need to use your HDHP), you may need to send those receipts to your insurer.

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.

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

Insured banks and credit unions are automatically qualified to handle HSAs. Any bank, credit union or 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.

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

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.

Yes. Joint HSAs are not permitted.

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.

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.

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

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.

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.

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.

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

Yes. Individuals may roll over IRA assets to HSAs. IRA owners may make a one-time direct rollover to a HSA. The rollover amount is limited to the annual HSA contribution amount. IRA owners may make a subsequent rollover if they change from single coverageto family coverage in the same year. Individuals must remain HSA-eligible for 12 months or the rollover amount is included in gross income and subject to a penalty.

You cannot directly roll funds in an IRA, 401(k) or other retirement plan into an HSA. You can withdraw funds from one of these accounts, pay applicable taxes (and penalties) on the amount you withdraw, and then use the remaining funds to make a contribution to your HSA. However, the amount you contribute to your HSA is still limited by the annual contribution limits.

Yes, if you do so within 60 days of withdrawing the funds from the Archer MSA.

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 designate that your estate is the beneficiary, the value of the HSA is included on your final income tax return.

No. You do not own your employees' HSAs. The employee fully owns the contributions to the account as soon as they are deposited, just as with a personal checking or savings account to which you would deposit their compensation.

Employee contributions can be made to HSAs on either an after-tax or a pre-tax basis. If made on an after-tax basis they should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-free. If they want to make the contribution pre-tax it can be done through a Section 125 plan (also called a "salary reduction" or "cafeteria plan").

As much or as little as you want (while staying below the legal limit on annual contributions to the account).

No. You can contribute in a lump sum or in any amounts or frequency you wish. However, keep in mind that the funds belong to the employee after they are deposited.

Employer contributions must be comparable. That is they must be in the same dollar amount or same percentage of the employee's deductible for all employees in the same "class". You can vary the level of contributions for full-time vs. part-time employees, and employees with self-only coverage vs. family coverage. You do not need to consider employees who do not have HDHP coverage as they are not eligible for HSA contributions.

Your company can make pre-tax contributions to your employees' HSAs as long as you do so for all eligible employees. However, the comparability rules apply. If you have a Section 125 plan, then the non-discrimination rules apply.

Owners and officers with greater than 2% share of a Subchapter S corporation cannot make pre-tax contributions to their HSAs through the company by salary reduction. In addition, any contributions made to their HSAs by the corporation are taxable as income. However, they can make their own personal contributions to their HSAs and take the above-the-line deduction on their personal income taxes.

Partners in a partnership or LLC cannot make pre-tax contributions to their HSAs through the partnership by salary reduction. However, they can make their own personal contributions to their HSAs and take the above-the-line deduction on their personal income taxes.

No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.