HSAs: What Are they? How do they work?

 

Health Savings Accounts, better known as HSAs, were initiated by a Medicare bill which was signed by President Bush in 2003. HSA are designed to help you save for future qualified medical and retiree health expenses on a tax-free basis. This means you can put your money into the HSA and receive essential equal tax- advantaged benefits as you would if you used an standard IRA.

Much like an IRA, an HSA ( Health Savings Accounts ) has limits to how much a person can contribute every year. We'll discuss this more further down the article.
 

Anyone over the age of 18 can open an HSA (Health Savings Account). A person must be covered by a high-deductible, qualifying health insurance plan with NO FIRST-DOLLAR COVERAGE. This means that there is no office co-pay, no prescription co-pay, etc.  Nothing will be covered by the insurance carrier until the deductible has been met. The HSA, Health Savings Account, is designed for a person to save the deductible money through Tax Advantaged Savings, and then use the money to pay for unreimbursed medical, dental and vision expenses.

Tax Advantaged Savings contributions can be made in three ways:

1) The insured can make tax advantaged contributions to an individual or family HSA even if deductions are not itemized;

2) An employer can make contributions that are pre-taxed to either the employer or the employee;

3) Employers sponsoring cafeteria plans can allow employees to contribute pre-tax salary through salary deduction.

NOTE: Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA, Health Savings Account.

The nice thing about an HSA, Health Savings Account, is that the contributions belong to the contributor!! Any distributions from the HSA are not taxed if they are used to pay for a legitimate qualified medical, dental or vision expense. Unlike Flexible Spending Accounts (FSA) where the contributions are forfeited if not used by the end of the year, all of the unused HSA funds remain available for use in later years.

 

How much can a person contribute to an HSA ( Health Savings Account ) annually?

 

An individual can contribute up to a maximum of $2,700.00 per year, or the amount equal to a health plans annual deductible. The same rules apply to a family however the maximum allowed contribution per year for a family HSA is $5,450.00. One catch is that the further into a calendar year, the less can be contributed. Example: If a HSA is opened on July 1, 6 months have been lost of the qualifying year therefore only 1/2 of the allowable HSA amount can be contributed.

 

Generally speaking, most unreimbursed medical, dental, and vision expenses are allowable under a Health Savings Account. IRS publication 502 gives all the specific details of what is allowed and what is not. Use the following link to print this information: http://www.insuranceguys.com/irs502.pdf

 

We look forward to any questions about HSAs, or assistance in setting up this program.

 

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800-585-8887.  Or e-mail us at info@InsuranceGuys.com.

 

 

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