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Q) What is an HSA?
A Health
Savings Account (HSA) is a tax-favored saving account that
is used in conjunction with a high-deductible HSA-eligible
health insurance plan to make healthcare more affordable
and to save for retirement.
HSAs
are
similar to IRAs, but even better:
-
Pre-tax money is deposited each year into an HSA and can
be easily withdrawn at any time with no penalty or taxes
to pay for qualified medical expenses.
Withdrawals can also be made for non-medical purposes,
but will be taxed as normal income and are subject to
a 10 percent penalty if done prior to age 65.
- Any
HSA funds not used each year remain in the account, and
earn interest tax-free to supplement medical expenses
at any time in the future.
-
Like an IRA, the account belongs to you, not your employer.
But unlike an IRA, your employer CAN contribute to your
HSA.
Q) Why should I get an HSA?
You
can save money in the short and long term by:
- Deducting
100% of your HSA contributions from your taxable income
-
Having the money in your HSA accrue interest and/or gains
on a tax-free basis
-
Paying no penalties or taxes when you use your HSA to
pay for qualified medical expenses
-
Having a high-deductible HSA-eligible health insurance
plan, which typically has a lower premium than a plan
with a lower deductible
Note:
Some HSAs charge a small monthly maintenance fee.
Q)
What are qualified medical expenses?
HSAs can be used to pay for many types
of medical expenses, even some that are often excluded on
health insurance plans. These include:
-
Health insurance plan deductibles, copayments, and coinsurance
- Prescription and
over-the-counter drugs
-
Dental services, including braces, bridges, and crowns
-
Vision care, including glasses and lasik eye surgery
-
Psychiatric and certain psychological treatments
-
Long-term care services
- Medically-related
transportation and lodging
Typically
HSAs cannot be used to pay health insurance premiums, although
there are exceptions for:
- Health
insurance premiums if you are receiving federal or state
unemployment benefits
- Premiums
for COBRA qualified health insurance
-
Long-term care insurance premiums
- Premiums
for a health plan (other than a Medicare supplemental
policy) for an individual age 65 or older
Note:
You must establish an HSA before incurring any expenses
or the expenses will not qualify.
Q) What insurance plans are HSA-eligible?
In order to have a Health Savings Account,
you must get an HSA-eligible health insurance plan. This type
of insurance plan is often referred to as a High Deductible
Health Plan, and is typically less expensive than plans with
lower deductibles. A
health insurance plan must meet the following criteria to
be considered HSA-eligible:
-
The health insurance plan must have an annual deductible
of at least $1,000 for individuals and at least $2,000
for families.
-
The sum of the annual deductible and the other annual
out-of-pocket expenses required to be paid under the plan
(other than premiums) does not exceed $5,000 for individuals
and $10,000 for families.
You can find these plans by visiting eHealthinsurance.com.
The HSA-eligible plans are identified on the site with the
symbol shown below:
Note:
If you have other health insurance coverage (such as coverage
under a spouse's employer-sponsored plan) in addition to your
HSA-eligible health insurance plan, then the other plan must
1) also be HSA-eligible in order to contribute to an HSA or
2) the other plan cannot cover any benefits provided under
your HSA-eligible plan.
Q) How much
can I contribute to my HSA?
Maximum yearly contributions (and associated tax deduction)
are determined as follows:
- For
individuals, it is the lesser of:
a) $2,600
b) Your health plan's annual deductible*
- For
families, it is the lesser of: a) $5,150
b) Your health plan's annual deductible*
You
do not have to contribute the maximum each year, although
some HSAs require a small minimum monthly contribution.
Note:
If you are between the ages of 55 and 65, you can make an
additional annual "catch up" contribution (of up
to $500 in 2006.) *If
you enroll in an HSA-eligible health plan in the middle of
the calendar year, your maximum contribution for the first
year will be prorated based on the number of months you have
the HSA-eligible health plan. For example, if your individual
health plan's annual deductible is $3600, and you enroll in
the HSA-eligible plan on June 1st, then your maximum contribution
for the first year can be up to $2100 (i.e. 7/12 of $3600).
If you are enrolled for all twelve calendar months, then you
can contribute the amount of the deductible up to the annual
maximum allowed ($2600 in Year 2006).
Q)
Is my money safe?
Funds in an HSA are held in a trust
and are administered by a bank, insurance company, or other
approved Trustee.
Funds
in your HSA are invested at your discretion. Typically an
HSA will allow you to choose from the following options:
-
Interest-bearing account
-
CDs
-
Money market funds
-
Mutual funds
If
you are looking to minimize your investment risk, you may
want to consider an interest-bearing account; these accounts
are FDIC insured. On the other end of the spectrum, mutual
funds may provide a greater return, but are more risky, and
are not FDIC insured.
Q)How
do I use my funds in my HSA?
Using
funds in your Health Savings Account is easy:
- Typically
an HSA will provide you with a checkbook or debit card.
When you pay for a qualified medical
expense, use the debit card or check to make the payment.
- You
do not need to get approval from the HSA administrator
when you use funds in your account.
-
You do not need to submit receipts to the HSA administrator,
although you should save them just as you keep receipts
for other items that are deducted from your taxes.
NOTE:
You must establish the HSA before you incur medical expenses
otherwise the expenses will not qualify.
Q)
How do the tax savings work?
HSAs make it easy to save on your taxes:
- At
the end of each year, you will be sent a statement showing
the amount you contributed to your HSA that year. You
can deduct this amount provided it is less than or equal
to the maximum allowable contribution.
- Much
like an IRA, HSA deductions are "above-the-line"
and thus can be taken even if you do not itemize.
- If
you are self-employed, in addition to deducting your HSA
contributions, you may be able to deduct 100% of your
health insurance premiums, provided that:
- You
are not eligible to participate in a subsidized health
plan offered by an employer or your spouse's employer.
- The
deduction does exceed the amount of net income from
your business.
Q)
Why Should I get my HSA through eHealthInsurance?
Q)
How can I get an HSA?
HSAs are
available to any person in the U.S. under the age of 65 who
has an HSA-eligible health insurance
plan. So,
to get an HSA, you need to do the following:
IT'S
EASY!
1)
Visit eHealthinsurance.com
to shop for an HSA-eligible health insurance plan. These plans
will be identified with this symbol:
2)
Start the online health insurance application process by clicking
the "Apply" button for the insurance plan you select.
3) After completing the
health insurance application process, fill out the HSA enrollment
form that will be presented to you online.
The
information above is provided for general purposes only and
is not tax advice. eHealthInsurance urges you to consult with
your accountant or tax advisor before opening a health savings
account to determine if it is appropriate specifically for
you.
>>U.S.
Department of the Treasury HSA Information
A comprehsive guide to Health Savings Accounts provided by
the U.S. Department of the Treasury. Guide includes: Directory
of Organizations and Offices, Frequently Asked Questions,
online resources and definitions. |
