What is a health savings account?
Otherwise known as an HSA, a health savings account can be funded with your tax-exempt dollars, by your employer, by a family member or by anyone else on your behalf. Dollars from the account can help pay for eligible medical expenses not covered by an insurance plan, including the deductible, coinsurance, and even health insurance premiums, in some cases.
Who is eligible for an HSA?
Anyone who is:
- Covered by a high-deductible health plan (HDHP);
- Not covered under another medical plan that is not an HDHP;
- Not entitled to (eligible for AND enrolled in) Medicare benefits; or
- Not eligible to be claimed on another person’s tax return.
What is a high deductible health plan (HDHP)?
A high-deductible health plan is a plan with a minimum annual deductible and a maximum out-of-pocket limit as listed in the following table. The IRS determines these minimums and maximums annually.
|Type of Coverage||Minimum Annual Deductible||Maximum Annual Out-of-pocket|
|Individual||$1,300 for 2017
$1,350 for 2018
|$6,550 for 2017
$6,650 for 2018
|Family||$2,600 for 2017
$2,700 for 2018
|$13,100 for 2017
$13,300 for 2018
How does an HSA work?
Part 1: Qualifying High Deductible Health Insurance Plan
Provides health care benefits after the deductible is met.
Part 2: Health Savings Account
Pays for out-of-pocket expenses incurred before the deductible is met.
What are the steps involved with an HSA?
- Employee, employer, family member and/or someone else funds the HSA account.
- Employee seeks medical services.
- HDHP pays for medical services, subject to deductible and coinsurance.
- Employee may seek reimbursement from HSA account for amounts paid toward deductible and coinsurance.
- Once the deductible and out-of-pocket maximum, employee may be covered for all remaining eligible expenses.*
Note: The HDHP can provide preventive care benefits without the required minimum deductible.
*Subject to plan design; check your HDHP Summary Plan Description.
When do I use my HSA?
Your in-network physician, facility or pharmacy will file your medical claim to your HDHP for payment. You can then use your HSA dollars to pay your out-of-pocket expenses (deductibles and coinsurance), or you can save your HSA dollars for a future medical expense. Many HSA custodians issue a debit card so you can easily access your HSA funds.
You may use your HSA for non-medical expenses; however, HSA amounts used for non-medical expenses are subject to income tax and an additional 20% penalty.
How much can I contribute to an HSA?
The annual HSA contribution limits for 2017 are:
- $3,400 for individual coverage and $6,750 for family coverage
The annual HSA contribution limits for 2018 are:
- $3,450 for individual coverage and $6,900 for family coverage
Individuals age 55 or older may be eligible to make a catch-up contribution of $1,000.
Can I contribute to both an HSA and an FSA in the same year?
General purpose FSA coverage will make you ineligible for HSA contributions. However, certain types of FSA designs will not prevent your HSA eligibility. For example, you can have a “limited FSA” (for example, an FSA that covers vision, dental and/or preventive care expenses on a first-dollar basis), and an HSA.
Also, you are eligible for an HSA if you have a “post-deductible FSA” (that is, an FSA that only pays or reimburses for medical expenses incurred after you’ve met the minimum annual HDHP deductible).
What if I enroll in an HSA in the middle of the year?
One way to start an HSA mid-year is to pro-rate the contributions; however, if you enroll in an HSA mid-year, you can make a full year’s contribution, provided you are eligible on Dec. 1 of that year and you remain eligible for at least the 12-month period following that year.
Why should I elect an HSA?
- Cost Savings
- Triple tax benefits
- HSA contributions are excluded from federal income tax
- Tax-deferred Interest earnings
- Withdrawals for eligible expenses are exempt from federal income tax
- Reduction in medical plan contribution
- Unused money accumulates in an interest-bearing savings or investment account
Note: Many states have not passed legislation to provide favorable state tax treatment for HSAs. Therefore, amounts contributed to HSAs and interest earned on HSA accounts may be included on the employee’s W-2 for state income tax purposes.
- Long-term Financial Benefits
- Save for future medical expenses.
- Funds roll over from year to year.
- Account is portable—you take it with you even if you leave the company.
- You have the control to:
- Manage your health care expenses.
- Use your HSA dollars to pay your health care expenses.
- Save your HSA dollars and pay health care expenses out-of-pocket.
- Decide whether to use your HSA dollars to pay for non-medical expenses and incur the additional taxes.