What is an HSA?

 

A Health Savings Account (HSA) is a tax-favored trust or custodial account established exclusively for the purpose of paying for current and future medical expenses. This health savings account is similar to an IRA account with one major difference: you can access the funds at any time to pay for qualified medical expenses as defined under Section 213 of the Internal Revenue Code. The bank or financial institution may issue a checkbook and/or debit card to be used to make withdrawals from your account. Amounts in an HSA may be invested in investments approved for IRAs such as bank accounts, certificates of deposit, stocks, mutual funds and bonds.

 

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What is an HSA qualified High Deductible Health Plan (HDHP)?

 

An HSA qualified HDHP is a health plan that satisfies certain requirements including deductibles and out-of-pocket expenses, that are set annually by the United States Treasury Department. Refer to your benefit summary for specific deductible and out-of-pocket amounts.

 

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Who is eligible to establish and contribute to an HSA?

 

A person can establish and contribute to an HSA if that individual is covered under an HSA qualified high deductible health plan. Conversely, individuals are not eligible to establish or contribute to an HSA if they are:

 

  • Covered under a health plan that is not a qualified HDHP (for example, coverage on a spouse's health plan that does not meet the minimum deductible requirements, such as one that has an office visit copay provision that provides coverage before the HDHP deductible is satisfied).
  • Covered under another comprehensive major medical individual insurance policy that does not qualify as an HDHP.
  • Covered under a health Flexible Spending Account (FSA) or Health Reimbursement Account (HRA) unless the FSA or HRA is a qualified HDHP or unless coverage under the FSA or HRA is limited to permitted benefits or specific benefits not provided by your high deductible health plan (i.e., dental or vision benefits).
  • Enrolled in Medicare.
  • Capable of being claimed as a dependent on another person's tax return.

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How can I contribute to an HSA and what is the maximum contribution amount?

 

Tax-deductible contributions can be made directly to your HSA account. Contributions can be made through payroll deductions or in the form of cash. They can be made in one or more payments and at anytime during the calendar year that you are covered under a qualified HDHP. If you are between the ages of 55 and 65, an additional catch-up contribution may be made. Contributions can be made in one or more payments and at any time during the calendar year that you are covered under the high deductible health plan. If, by the end of the calendar year, you have not contributed the maximum amount to your account, you may continue to make contributions until the April 15 tax deadline. You own the account and immediately own any funds contributed to it. Reference treas.gov for current HSA contribution indexed amounts.

 

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Who can make contributions into the HSA account on my behalf?

 

Contributions to the HSA can be made by the employer, employee/participant or any other person on behalf of the employee/participant.

 

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What are the advantages of an HSA?

 

Contributions are generally tax deductible and the interest and/or earnings from the investment are exempt from current income tax.

 

  • Distributions are also excluded from gross income when used for qualified medical expenses for the participant, the participant's spouse or the participant's dependents.
  • Contributions remain in the HSA from year to year until used (no "use it or lose it" rules apply).
  • An HSA account is owned by the individual (not the employer) and is completely portable.

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What are the disadvantages of an HSA?

 

Distributions/withdrawals that are not for qualified medical expenses are subject to penalties, except in cases of disability, death or attainment of age 65. Contributions are limited based on specific guidelines. Please consult your tax advisor for specific details.

 

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Who is responsible for determining whether an HSA distribution has been used for qualified medical expenses?

 

IRS regulations place the responsibility on the owner of the HSA to make sure that a distribution is for a qualified medical expense. The owner must maintain records of all medical expenses. You may be required to show that the distributions have been made exclusively for qualified medical expenses and are therefore excludable from gross income and not subject to penalties.

 

You may withdraw funds at any time. In the event of an audit, it is your responsibility to substantiate that the withdrawal is for a qualified medical expense. Qualified medical expenses are defined in section 213(d) of the Internal Revenue Code. Any qualified disbursements from the HSA account will remain tax free. Please note that there are substantial tax penalties for account disbursements that do not qualify under the regulations. Please consult your tax advisor for specific penalty information.

 

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Are there any government forms to complete?

 

The bank or financial institution will have the necessary authorization forms for you to complete in order to establish an HSA. An eligible individual may establish an HSA with or without involvement of his or her employer. However, employer contributions to an HSA must be reported on the employee's Form W-2. The IRS will release forms and instructions, on how to report HSA contributions and distributions.

 

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What happens if I have not used all of the money in my account by the end of the year?

 

Funds placed in an HSA, as well as any accumulated interest, may be rolled from one year to the next year. Unlike a Flexible Spending Account, this is not a "use it or lose it" arrangement.

 

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How do I receive reimbursement for qualified medical expenses?

 

In most situations the financial institution will set up the account and may provide you with a checkbook and/or debit card for withdrawals from your account. It is the individual's responsibility to prove to the IRS that distributions from the HSA were for qualified medical expenses. Therefore, you should keep all of your receipts.

 

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Are insurance premiums reimbursable from my HSA?

 

Generally, health insurance premiums do not qualify as a medical expense. However, under 213(d) of the Internal Revenue Code, funds may qualify for distribution if they are used for:

 

  • COBRA premiums
  • Long-term care insurance premiums (subject to annual dollar limits based on age)
  • Health plan premiums while an individual is receiving unemployment compensation
  • Medicare Part B premiums
  • Retiree premiums for employer provided coverage

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Do I have to keep track of how much money is in my account during the year?

 

As with any investment account, you will receive a monthly statement of your account balance from your financial institution/account trustee.

 

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What is a high deductible health plan?

 

An HDHP is a health insurance plan as defined in IRS Code Section 223. To qualify as a HDHP you must be enrolled in a health care plan that has minimum annual deductibles of $1,200 for individual coverage or $2,400 for family coverage. The annual out-of-pocket expense maximums (including deductibles and co-payments but not including premiums) cannot exceed $6,050 for individuals or $12,100 for families. These deductible and out-of-pocket amounts (for 2012) will be indexed annually for inflation. For 2013, the minimum annual deductible amount for individual coverage is $1,250 and for family coverage is $2,500. Also for 2013, the annual out-of-pocket expense maximums (including deductibles and co-payments but not including premiums) cannot exceed $6,250 for individuals or $12,500 for families. Please refer to your plan documents for your employer's plan limits.

 

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If I leave my job, what happens to my HSA?

 

You own the account and any funds contributed to it immediately. The HSA is portable and you take it with you, even if you leave employment. If you want to move your account from one financial institution to another institution, you can receive a distribution from the HSA and then roll the funds into another eligible account. This transaction must occur within 60 days to avoid paying taxes on the savings.

 

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What happens to the HSA upon death?

 

You have the right to designate a beneficiary of your HSA in the event of your death. If your designated beneficiary is your spouse, that person may continue to use the HSA to pay qualified medical expenses. If your designated beneficiary is someone other than your spouse, then your HSA ceases to qualify as an HSA and the value of the account will be included in the gross income of the beneficiary.

 

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Are HSAs subject to COBRA continuation coverage?

 

No, HSAs are not subject to COBRA continuation coverage.

 

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Is there anything else I should know about this benefit plan?

 

  • In order to be considered an HSA qualified high deductible health plan under the United States Department of Treasury guidelines, all services must be subject to the deductible before benefits can be paid.
  • Some preventive benefits are covered at 100 percent when using in-network providers. Please refer to your benefit materials for specific coverage information.
  • Deductible and out-of-pocket limits do not apply to out-of-network expenses, and these may be higher than the in-network limits. Therefore, you will receive the greatest level of benefits by using in-network providers.

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If I have any questions regarding my HSA account, whom do I call?

 

You should contact your account trustee.

 

If your employer is using The Bank of New York Mellon as your trustee, call 1 877 484-5033, visit hsamember.com or write The Bank of New York Mellon Contact Center, PO Box 4038, 462 Washington Street, Woburn, MA 01888-4038.

 

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