Health Savings Accounts

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What is a Health Savings Account?

A Health Savings Account (HSA) is designed for people with High Deductible Health Plans. An HSA is like an IRA or a 401(k) for medical expenses. It's a complement to traditional health insurance, enabling you to pay for current health expenses and save for future medical expenses on a tax-free basis. If you change jobs or move to another city or state, your HSA can move with you. Unlike a flex plan with its "use it of lose it" rule, your HSA money rolls over from one year to the next. Best of all, you own and control the money in your HSA. All decisions on how to spend and/or invest the money in your account are made by you.

Who is eligible for an HSA?

You must be covered by an HSA-qualified High Deductible Health Plan (HDHP) to take advantage of an HSA. A HDHP is a less expensive health insurance plan that generally doesn't pay for the first several thousand dollars for health care expenses (i.e., your deductible), but will generally cover you after that. For more details on what is considered an HSA-qualified HDHP, refer to the contribution guidelines or contact your insurance agent or tax professional.

Generally you
are eligible if:		 Generally you are
not eligible if:		 Some Exceptions include:
You are an adult covered by a High Deductible Health Plan (HDHP). You are covered by another health insurance plan that is not a HDHP. Auto, dental, vision, disability and long-term care insurance are acceptable. You may have coverage for a specific disease or illness as long as it pays a specific amount when the policy is triggered.
  You are enrolled in Medicare. Wellness programs offered by your employer are also permitted if they do not pay significant medical benefits.
  You can be claimed as a dependent on someone else, tax return.  
  You have received health benefits from the Veterans Administration or one of their facilities, including prescription drugs, in the last three months.  

Example 1: Jim and Susan have family HDHP coverage with a $5,000 deductible. Jim has no other coverage. Susan also has family coverage with a $200 deductible. Jim and Susan are treated as having family coverage with the lowest annual deductible ($200). Neither Jim nor Susan is an eligible individual and neither may contribute to an HSA.

Example 2: Mike and Carol have family HDHP coverage with a $5,000 deductible. Mike has no other coverage. Carol is also enrolled in Medicare. Carol is not an eligible individual and cannot contribute to an HSA. Mike may contribute $5,000 to an HSA.

What are the tax benefits and regulations?

Contributions to the HSAs are tax-deductible at the federal level. Money that is withdrawn to pay for qualified medical expenses is not subject to tax or penalty. In addition, earnings on your funds in your HSA are also tax free, as long as they are used to pay for qualified medical expenses. Consult your tax advisor for details.

The Treasury Department and IRS set guidelines on annual contribution levels for HSAs along with minimum deductible amounts and maximum amounts for out-of-pocket spending on HSA-qualified HDHPs. For more information, please refer to the contribution guidelines.

If your employer offers a cafeteria plan, you can contribute to your HSA on a pre-tax basis (i.e., before income taxes and FICA taxes). If you do so, you cannot additionally take the "above the line" deduction on your personal income taxes.

What is the deadline for making HSA contributions?
Contributions to an HSA must be made by April 15th or the tax deadline following the year for which the contributions are made.

How much can I contribute to my HSA?
Your annual HSA contribution cannot exceed the deductible of your HDHP. However, if you have a very high deductible, there are limits to the amount you can contribute. If you are age 55 or older, you can also make additional "catch-up" contributions. Contributions to HSAs can be made in a lump sum or in any amount or frequency you wish. For more information, please refer to the contribution guidelines.

Does my contribution depend on when I establish my HSA account or when my HDHP coverage begins?
Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. You annual contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month.) 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.

Can both my spouse and I open an HSA?
If each spouse has a self-only High Deductible Health Plan (HDHP), then each spouse is eligible to contribute to an HSA in his/her own name, up to the amount of the deductible under his/her respective policies. However, each spouse's contribution cannot exceed the contribution limits for individuals. If both spouses have family HDHP coverage but one spouse has other coverage, both spouses may be eligible for an HSA depending on the other coverage held by one spouse. For more information, please refer to the contribution guidelines.

Making Payments with your HSA
Paying for those new eyeglasses, a prescription medication or an office visit with your physician is easy with your Basin State Bank HSA. Since you control the account, it is your responsibility to ensure you have the necessary funds in your HSA before making any payments from the account.

What are Qualified Medical Expenses?
HSA funds can pay for any qualified medical expense, even if the expense is not covered by your HDHP.

For example, most health insurance does not cover the cost of over-the-counter medicines, but HSAs can.

To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. Your health plan administrator or insurance company should be able to provide you with a list of qualified medical expenses covered under your health plan. In addition, the Federal Government provides information on "qualified medical expenses" in IRS Pub 502. This publication is available at your local IRS office or at www.irs.gov/pub/irs-pdf/p502.pdf

Who decides whether the money I'm spending from my HSA is for a "qualified medical expense?"
Your HSA account belongs to you, not to your employer or your insurance company. Therefore, you are responsible for deciding whether the money you are spending is for a qualified medical expense. You should familiarize yourself with what qualifies as a medical expense and keep your receipts in case you need to support your expenditures or decisions during an audit.

What if I don't use my HSA for medical expenses?
If the money is used for purposes other than qualified medical expenses, the expenditure will be taxable as income. Individuals who are not disabled or over age 65 will also be subject to a 10% penalty. If you are over 65, the amount withdrawn will be taxable as income but will not be subject to any other penalties.