About

Health Savings Accounts (HSA) is either a tax-exempt trust or custodial account established for the purpose of paying medical expenses in conjunction with a high-deductible health plan. It may only be used in conjunction with the high-deductible medical account. The institutions that can handle the HSA are the same that are eligible to handle a traditional IRA plan.

High Deductible Health Plans (HDHP) are those plans with an individual deductible of at least $1,100 for individual coverage, and at least $2,200 for family coverage. Either the employer or the employee can provide the health coverage. The health plan may be offered by a variety of entities such as an HMO, insurance companies or by a self-funded arrangement. The maximum out of pocket for the HDHP must not exceed $5,500 for an individual, or $11,000 for family coverage. Preventive care may be provided on a first dollar basis.

Contributions

Contributions to an HSA may be made by individuals, the employer, or by rollovers from an Archer MSA. They may also be funded through a Section 125 type plan. The maximum contribution limitation is $2,200 for an individual and $5,550 for a family coverage. Contributions are made on a monthly basis and must be 1/12 of the annual amount. The individual contributions are tax-deducible and the earnings in the account are not taxable. The contributions must stop when the individual covered attains age 65. Individuals over age 55 my make an additional $500 contribution. The indivual taxpayer is responsible for monitoring the deductible limits, even if the employer is making some of the contributions. Any contributions in excess of the limits have a 6% excise tax accessed to them.

Distributions

An individual can receive a distribution from an HSA at any time. The distributions are excludable from gross income if used for medical expenses of the HSA holder, or the HSA holder’s family. The expenses that are excludible from income are those found under Section 213(d) of the code. Distributions that are not used for medical expenses are includable in gross income and are subject to an additional excise tax. Account holders that turn age 65, become disabled, or die are not subject to the excise tax.

Eligible Medical Expenses

Medical expenses that are eligible for tax exemption are those found in Section 213(d) of the Code. They do not include insurance premiums for other than long-term care, Cobra health premiums, or premiums while the employee is out on unemployment compensation. Premiums for a Medigap program may not be exempted from income, however, medicare premiums are eligible.

Observations

HSA type accounts are easy for an employer or an employee to set up, and they allow for a rollover of funds from year to year unlike the Section 125 cafeteria programs. The main drawback for an employer to offering a HSA program is that the employee can draw funds for any purpose and simply pay the taxes on the funds withdrawn. This ability to withdraw funds may expose the employee to unexpected large medical claims at a future date. The other drawback is moving from a traditional co-pay and deductible plan to a high deductible plan in order to qualify for the HSA program.

While we do not administer HSA programs, they may be integrated with Section 125 or HRA programs offered by the employer.