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Medical Insurance Health Savings Accounts |
US Department of Treasury HSA Brochure*
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Health Savings Accounts (HSA Plans) for Individuals and Employee GroupsHealth Savings Accounts or HSA plans allow you to save money to pay for future medical expenses on an income tax-free basis. Any individual, who has an approved High Deductible Health Plan (HDHP) and who is not covered under another disqualifying health plan, can participate in an HSA. An employer can also offer Health Savings Accounts to his employees and both the employer and employees are allowed to contribute funds to the HSA.
An Insurance Policy and a Special Savings Account
A Health Savings Account is really a combination of a health insurance policy meeting minimum US Treasury policy design, requirements called a High Deductible Health Plan. Congress created the HSA as a way to cover your future medical expenses, and it is subject to IRS regulations and guidelines. A health insurance company provides the qualified health insurance policy. A licensed HSA administrator and financial service company, such as a bank, acts as the custodian and administers the savings account portion of the HSA.
The Health Insurance Plan Must Meet Certain Design Requirements
A qualified HSA plan has a single deductible that applies to all medical expenses covered by the insurance policy whether you are insuring yourself or an entire family. This deductible must be satisfied each calendar year before the insurance company pays on any medical claims. The single deductible for an individual must be a minimum of $1000 to a maximum of $2650. The maximum out-of-pocket limit is $5100. The single deductible for a family must be at least $2000 to a maximum of $5100. The out-of-pocket limit is $10,250. The limits on maximum out-of-pocket expense include both the deductible and any shared expenses you are obligated for. These limits are subject to annual cost-of-living-adjustments determined by the IRS, which will cause these values to change over time. You can exceed the out-of-pocket limits if you go outside the provider network on a preferred provider plan.
Yearly Savings Allowed in HSA Accounts Based on Plan Deductible and Age
You can save up to 100% of the individual deductible not to exceed $2650 and you can save up to 100% of the family deductible not to exceed $5250 for 2005 in your HSA account. These limits are also subject to annual cost-of-living adjustments. Amounts are pro-rated if you start the plan mid-year. Individuals age 55 to age 65 can contribute an additional $600 over the above limits in 2005 and the additional amount allowed increases by $100 each year until it reaches $1000 in 2009. If both husband and wife are over 55, each can contribute the additional amount to an HSA.
Use of HSA Funds to Pay Medical Expenses
Funds in an HSA accounts can be used to pay both medical expenses incurred in meeting the deductible and any required shared expense you are responsible for each year tax-free. These funds can also be used to cover qualified medical expenses not covered by the health insurance plan such as vision and dental expense. See IRS Section 213 -medical, dental, etc., expenses or IRS publication 502 "Medical and Dental Expenses" for IRS rules on allowable expenses.
Savings Account Money Belongs to You and Can Be Accumulated
You own the HSA funds in your account. If you have an HSA as part of an employer sponsored health plan, you still own the funds, including any employer contributions, and can take them with you when you leave or retire. You can carry unused funds over from year to year until retirement. Like an IRA, investment earnings accrue tax-free. If you withdraw funds prior to age 65 for non-medical expense, you will be subject to a 10% income tax penalty in addition to any other income taxes you may owe on the accumulated funds. After age 65 you can continue to use the funds tax-free for medical expenses including premiums on health insurance and Medicare plans, except for Medicare Supplements, or you can withdraw the funds for other purposes subject to normal income taxes without a penalty. The 10% penalty is waived in the case of death, or disability.
Transfer of Ownership to Spouse on the Death of An Individual
HSA ownership may transfer to an individual's spouse, upon death, on a tax-free basis.
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Pacific Benefit Consultants, Inc. 450 Country Club Rd. Suite 330 Eugene, Oregon 97401 (541) 484-6624 (541) 484-4245 (Fax) (800) 588-8688 (Toll Free) |
