Your Guide to Health Savings Accounts
Q: What is a Health Savings Account (“HSA”)?
Q: What Is a “High Deductible Health Plan” (HDHP)?
Q: How can I get a Health Savings Account?
Q: How much does an HSA cost?
Q: Can I get an HSA even if I have other insurance that pays medical bills?
Q: I don’t have health insurance, can I get an HSA?
Q: I’m on Medicare, can I have an HSA?
Q: I am a Veteran, can I have an HSA?
Q: I’m active-duty military and have Tricare coverage, can I have an HSA?
Q: I don’t have a job, can I have an HSA?
Q: How much can I contribute to my HSA each year?
Q: Can my employer contribute to my HSA?
Q: Do my contributions provide any tax benefits?
Q: If my employer contributes to my HSA, does that also provide me any tax benefit?
Q: Can I claim both the “above-the-line” deduction for an HSA and the itemized deduction for medical expenses?
Q: May a self-employed person contribute to an HSA on a pre-tax basis?
Q: Does an HSA pay for the same things that regular insurance pays for?
Q: Are dental and vision care qualified medical expenses under a Health Savings Account?
Q: Do unused funds in a Health Savings Account roll over year after year?
Q: Who can help me establish my account?
Q: Who has control over the money invested in a Health Savings Account?
Q: Can the funds in an HSA be invested?
What is a Health Savings Account (“HSA”)?
A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.
You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.
What Is a “High Deductible Health Plan” (HDHP)?
You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses your plan does not cover.
How can I get a Health Savings Account?
Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for employees as well.
How much does an HSA cost?
An HSA is not something you purchase; it’s a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA.
Can I get an HSA even if I have other insurance that pays medical bills?
You are only allowed to have automobile, dental, vision, disability and long-term care insurance at the same time as an HDHP. You may also have coverage for a specific disease or illness as long as it pays a specific dollar amount when the policy is triggered. Wellness programs offered by your employer are also permitted if they do not pay significant medical benefits.
I don’t have health insurance, can I get an HSA?
You cannot establish and contribute to an HSA unless you have coverage under a HDHP.
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I’m on Medicare, can I have an HSA?
You are not eligible for an HSA after you have enrolled in Medicare. If you had an HSA before you enrolled in Medicare, you can keep it. However, you cannot continue to make contributions to an HSA after you enroll in Medicare.
I am a Veteran, can I have an HSA?
If you have received any health benefits from the Veterans Administration or one of their facilities, including prescription drugs, in the last three months, you are not eligible for an HSA.
I’m active-duty military and have Tricare coverage, can I have an HSA?
At this time, Tricare does not offer an HDHP options so you are not eligible for an HSA.
I don’t have a job, can I have an HSA?
Yes, if you have coverage under an HDHP. You do not have to have earned income from employment – in other words, the money can be from your own personal savings, income from dividends, unemployment or welfare benefits, etc.
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How much can I contribute to my HSA each year?
For 2007 and forward, your maximum annual HSA contribution is based on the statutory limit for your type of coverage. For 2007, if you have self-only HDHP coverage, your contribution is $2,850; $5,650 if family HDHP, no matter what your HDHP deductible is. Before 2006, the contribution could not exceed the deductible of your HDHP. If you are age 55 or older, you can also make additional “catch-up” contributions (see below).
Can my employer contribute to my HSA?
Contributions to HSAs can be made by you, your employer, or both. All contributions are aggregated to determine whether you have contributed the maximum allowed. If your employer contributes some of the money, you can make up the difference.
Do my contributions provide any tax benefits?
Your personal contributions offer you an “above-the-line” deduction. An "above-the-line" deduction allows you to reduce your taxable income by the amount you contribute to your HSA. You do not have to itemize your deductions to benefit. Contributions can also be made to your HSA by others (e.g., relatives). However, you receive the benefit of the tax deduction.
If my employer contributes to my HSA, does that also provide me any tax benefit?
If your employer makes a contribution to your HSA, the contribution is not taxable to you the employee (excluded from income).
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Can I claim both the “above-the-line” deduction for an HSA and the itemized deduction for medical expenses?
You may be able to claim the medical expense deduction even if you contribute to an HSA. However, you cannot include any contribution to the HSA or any distribution from the HSA, including distributions taken for non-medical expenses, in the calculation for claiming the itemized deduction for medical expenses.
May a self-employed person contribute to an HSA on a pre-tax basis?
No. Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.
Does an HSA pay for the same things that regular insurance pays for?
HSA funds can pay for any “qualified medical expense”, even if the expense is not covered by your HDHP. For example, most health insurance does not cover the cost of over-the-counter medicines, but HSAs can. If the money from the HSA is used for qualified medical expenses, then the money spent is tax-free.
Are dental and vision care qualified medical expenses under a Health Savings Account?
Yes, as long as these are deductible under the current rules. For example, cosmetic procedures, like cosmetic dentistry, would not be considered qualified medical expenses.
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Do unused funds in a Health Savings Account roll over year after year?
Yes, the unused balance in a Health Savings Account automatically rolls over year after year. You won’t lose your money if you don’t spend it within the year.
Who can help me establish my account?
Insured banks and credit unions are automatically qualified to handle HSAs. Any bank, credit union or any other entity that currently meets the IRS standards for being a trustee or custodian for an IRA or Archer Medical Savings Account (MSA) can be an HSA trustee or custodian. The law also allows insurance companies to be HSA trustees or custodians.
Who has control over the money invested in a Health Savings Account?
The account holder controls all decisions over how the money is invested. You can also choose not to invest your funds.
Can the funds in an HSA be invested?
Yes, you can invest the funds in your HSA. The same types of investments permitted for IRAs are allowed for HSAs, including stocks, bonds, mutual funds, and certificates of deposit.
Learn More:
HDHPs and HSA Administrators
How Funds Are Used
Contribution Amounts
Tax Benefits
Qualified Medical Expenses
FAQs
Calculate Your Savings
