What is a Health Savings Account?
A Health Savings Account Insurance Plan consists of a high deductible major medical insurance policy in combination with a tax deferred, tax favored savings account. The Health Savings Account or HSA can be used for IRS-qualified medical expenses that may not normally be covered by traditional insurance plans.
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What are the benefits of a Health Savings Account?
- Tax benefits and lower costs for both the employer and the employee
- Freedom to choose services you want (must follow IRS and plan guidelines)
- Freedom to choose health care provider
- Earn tax-free interest
- Freedom to plan for anticipated health expenses
- Manage your own health care expenses
- Take responsibility for health and wellness
As an employer, how does my business or health practice benefit from Health Savings Accounts?
There are huge savings in premiums as well as tax benefits
Employer funded amount is excluded from employee gross income
Employer contributions are not subject to withholding for FICA, State and Local Taxes, Federal Unemployment
More health care options for employees including choice of providers, dental, chiropractic, and eye care
Employees have an incentive to live healthier lifestyles
Clients or patients with HSAs have ability to pay for your health services without filing insurance claims
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What is the tax treatment for employers?
Employer contributions are not considered income and therefore not subject to withholding and other employment taxes. It is advisable to contact a qualified tax adviser before making any decision regarding tax issues.
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What is the tax treatment for employees?
Employee contributions are tax deductible. Account distribution is tax free as long as funds are spent on health care defined under 213(d) of IRS Code. It is advisable to contact a qualified tax adviser before making any decision regarding tax issues.
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Who benefits most from an HSA?
Health Savings Accounts are not just for the healthy or the wealthy. HSAs and qualified high-deductible health plans can work for anyone, regardless of their income or the state of their health. HSAs are the best financial vehicle to save for retirement, pay for current medical expenses, and even pay for long-term health.
Think about your personal health situation and compare your current policy and annual health expenditures with a Health Savings Account in conjunction with a high deductible health insurance policy.
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Who owns the Health Savings Account?
The individual member owns the account regardless of who contributes. The HSA is portable meaning that the funds travel with you should you change employment.
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Who funds the Health Savings Account?
HSAs can be funded with pre-tax dollars by the member, the employer, or a third party.
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How much can I set aside in a Health Savings Account?
Participants can contribute as much as they feel they need up to certain limits: $2,900.00 for individuals and $5,800.00 for families. Individuals over age 55 can contribute additional catch-up funds. The contributions may change according to federal law.
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Does an HSA earn interest?
Yes. Best of all, the interest accumulates tax-free.
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Can HSA funds be invested?
Yes, in stocks, bonds, mutual funds, CDs, and annuities.
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What happens to unused funds in an HSA?
The funds "roll over" into the next year continuing to earn interest.
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What are some of my options regarding the funds in my Health Savings Account?
You can use those funds to pay for:
- Your deductible
- Services and products not normally covered by traditional health plans such as eyeglasses and contact lenses, dental treatment, hearing aids, chiropractic adjustments, acupuncture, and other therapies (See IRS Code 213(d) for qualifying expenses)
- Pay insurance premiums for Long-Term Care
- Save for anticipated health care expenses
- Save for retirement
- Your health insurance premiums and for your routine health expenses (tax-free) if you are unemployed, laid off, and are collecting State or Federal unemployment insurance.
Can I use my HSA fund to pay for dental expenses with or without a separate dental plan?
Yes, these are considered to be eligible expenses. Funds can accumulate over time allowing you to pay for those larger dental expenditures such as implants, crowns and bridges, periodontal surgery, and orthodontics.
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Can a Health Savings Account be used to pay for alternative medical procedures?
Yes. You may use your savings account for many services that are not normally covered by traditional plans such as acupuncture, chiropractic, and nutrition. See IRS code 213(d) for qualified expenses.
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Will I have medical coverage in case of a major catastrophe?
Yes. Once you meet your deductible, the major medical portion of the health plan will be activated. Depending on your selected high deductible health plan, co-pays and co-insurances will vary with a maximum cap per year for total out of pocket expenses (Ususally $2000 to $5000 beyond the deductible). Once the out-of-pocket maximum provision is reached, the health plan pays 100% of the medical bills.
Can HSA funds be withdrawn at any time?
Yes, as long as the funds are used to pay qualified medical expenses the money is not taxed at the federal level. If money is withdrawn before age 65 for other expenses, the regular tax rate would apply as well as a 10 percent penalty. After age 65, there are taxes for non-medical expenses but no penalty.
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Do my HSA contributions affect my IRA contributions?
No. Your HSA contributions won’t affect your IRA limits - $4,000 per year or $4,500 for those over 50. It’s just another tax-deferred retirement savings account.
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What if my employer doesn't offer a Health Savings Account?
Direct your employer to this website and have them fill out the information form. A qualified representative will contact your employer to explain Consumer Directed Health Insurance Plans.
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