What is a Health Savings Account?
When combined with a high deductible health plan, a Health Savings Account (HSA) is an alternative to traditional health insurance. This tax-advantaged savings product offers a different way for consumers to pay for their health care. HSAs enable members to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
A person must be covered by a high deductible health plan (HDHP) to take advantage of HSAs. An HDHP generally costs less than traditional health care coverage and the money saved on insurance can be put into the HSA. The HSA owner owns and controls the money in the HSA. Decisions on how to spend the money are made by the HSA owner.
What Is a High Deductible Health Plan?
Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is a less expensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., the “deductible”) but will generally provide coverage after that. Of course, the HSA is available to help pay for the expenses that the insurance plan does not cover.
To contribute to an HSA for 2009, a member must be covered by an HDHP with a deductible of $1,150 (self-only coverage) or $2,300 (family coverage). The annual out-of-pocket expenses cannot exceed $5,800 (self-only coverage) or $11,600 (family coverage.)
What expenses can I cover with my HSA?
Most medical, dental and vision care, as well as prescription drugs are eligible for payment from your HSA. These expenses must be incurred by you, your spouse, or your dependants.
What happens if I use my HSA for ineligible expenses?
The withdrawal may be subject to regular income tax, if you are under the age of 65, as well as a possible 10% tax penalty.
Who is eligible for an HSA?
A member is only allowed to have auto, dental, vision, disability and long-term care insurance at the same time as an HDHP. The member may also have coverage for a specific disease or illness as long as it pays a specific dollar amount when the policy triggered. Wellness programs offered by the member’s employer are also permitted if they do not pay significant medical benefits.
Can a member get an HSA even if the member has other insurance that pays medical bills?
Does the HDHP policy have to be in the name of the individual contributing to an HSA?
No. While an individual must be covered by an HDHP, the policy does not have to name the individual as an insured. HSA eligibility can be established by a family coverage HDHP provided by the employer of the member’s spouse.
Is health insurance required to contribute to an HSA?
A member cannot establish and contribute to an HSA unless the member has coverage under a high deductible health plan (HDHP).
Can a member covered by Medicare contribute to an HSA?
No. A member covered by Medicare cannot contribute to an HSA.
What is the maximum HSA contribution?
A member who is eligible to make HSA contributions for all of 2009 can make contributions of up to $3000 for single coverage HDHP, or $5950 for a family coverage HDHP.
Can members who are over age 55 make “catch-up” contributions to their HSAs as they can with their IRAs?
Yes, individuals age 55 and older who meet the HSA eligibility tests can make additional “catch-up” contributions. The additional allowed “catch-up” contribution to an HSA for 2009 and after is $1,000.
What happens to my HSA when I turn 65?
You can continue to use the account for eligible out of pocket expenses. When Medicare coverage takes effect, you will no longer be able to contribute to your HSA, however your HSA can take care of Medicare premiums, deductibles, and co-pays. At this age, you can also use HSA funds for non-medical reasons. The amount withdrawn may be taxable as income, but it is not subject to penalties.
What happens to my HSA when I die?
If you are married and your spouse is designated as beneficiary, the funds will go to your spouse; he/she will assume the HSA as his/her own. They will need to continue to use the funds for qualified medical reasons. If you are not married, the funds will go to whomever you name as beneficiary. Otherwise, they become part of the estate and are subject to applicable taxes.
What if I lose my HDHP Coverage?
You can continue to pay for qualified medical expenses, however, you won’t be able make any more contributions to the account. There is no time limit on using the funds. They will remain in your HSA until you need them.
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