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What is an HSA?An HSA/Health Savings Account is a tax-free savings account combined with a qualified High Deductible Health Plan (HDHP). HSA accounts became available on January 1, 2004. The HSA account allows you to accumulate savings to pay for qualified medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment, and all the decisions about the account are made by you. HSA accounts are individual owned, they rollover from year to year and earn interest tax free. Individuals who are under the age of 65 are eligible to contribute to an HSA if they have a qualified HDHP. The HSA account is owned by an individual (not an employer), so the individual decides:
The qualified HDHP provides comprehensive coverage for serious illnesses and injuries for a more affordable premium rate. A qualified HDHP is: Deductible RequirementsMinimums for Tax Year 2005: Maximum Out-of-PocketMaximums for Tax Year 2005: Who Can Have an HSA?Any adult can contribute to an HSA if they:
How do I know if I have an HSA qualified High Deductible Health Plan (HDHP)?The easiest way to find out of you have a HDHP is to ask your health insurance company. If they say "yes”, then you know you have a HDHP. Can my HDHP include a prescription drug card?Yes, but only through calendar year 2005. As of January 1, 2006, HDHP's must apply costs of prescription drugs to the annual deductible or the individual may not contribute to an HSA. Can my HDHP include "preventive care” services on a first dollar basis (with or without copay?In general, the deductible must apply to all medical expense (including prescriptions) covered by the plan. However, plans can pay for "preventive care” services on a first-dollar basis (with our without a copay). "Preventive care” can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, pap smears, etc. Who Is Eligible?
Any individual who meets these guidelines is eligible to contribute to an HSA as long as the HDHP meets the IRS requirements to be a qualified HDHP. The U.S. Department of Treasury's guideline can be found at: http://www.treas.gov/offices/public-affairs/hsa/pdf/notice2004-2.pdf Eligibility to contribute to an HSA does not depend on your income, earned income, who the primary policy holder is or the insurance coverage of your children. See http://www.treas.gov/offices/public-affairs/hsa/faq_managing.shtml for frequently asked questions. What other health coverage is allowed for you to still be eligible for an HSA?
What "1st dollar" medical benefits make someone ineligible for an HSA?
HSA accounts may grow through investments earnings just like an IRA.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. 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. Does the money in my account "roll over" from year to year?Yes, there are no "use it or lose it rules” like Flexible Spending Arrangements (FSAs). All unspent balances in your account remain in the account until spent. How does an HSA differ from a savings account?HSA contributions, earnings and withdrawals are not subject to federal income taxes. Any funds in a regular savings account do not have these tax advantages. How does an HSA differ from an FSA (flexible spending account)?Both allow you to medical bills with pre-tax dollars. However the HSA balance rolls over from year to year, while any dollars left in the flex-plan at the end of the year is forfeited. Can I have an HSA and FSA both?According to the IRS, you must use the funds in your HSA before you can use the funds in your FSA for qualified medical expenses. Your FSA can only be used to cover dental, vision, preventive care expenses and other expenses not covered by your qualified high deductible health plan. |
