What are Health Savings Accounts (HSAs)?
HSAs are tax-exempt accounts set up by an employer or
individual to pay eligible health care expenses
including insurance policy deductibles, co-payments and
other out-of-pocket medical expenses. An HSA must be
established with a high deductible health plan so that
the HSA is used to pay routine expenses, and the plan is
used to pay more significant expenses.HSAs were
created to replace Medical Savings Accounts (MSAs),
another special account used to pay eligible health care
expenses. Effective January 1, 2004, no new MSAs may be
opened under federal law. However, existing MSAs may
continue to be operated, or may be rolled over into an
HSA.
HSAs allow employers and consumers to set aside funds
on a tax-free basis to pay health care expenses,
including expenses that may not be covered by
traditional health insurance. For example, HSAs may be
used for vision and dental services, prescription drugs,
over-the-counter drugs, long-term care services and
certain health insurance premiums in retirement.
Who is eligible to open an HSA?
HSAs are open to anyone who:
- Is covered under a qualifying high deductible
health plan.
- Is not covered by any other heath plan that is
not a high deductible health plan (with some
exceptions)
- Is not entitled to benefits under Medicare
(generally, has not yet reached age 65), and
- May not be claimed as a dependent on another’s
tax return
A HSA qualified high deductible health plan must have
a minimum deductible of $1,000 for single (self-only)
coverage and $2,000 for family coverage (2005). Out of
pocket expenses must be limited to $5,100 for single
coverage and $10,200 for family coverage (2005). The
plan may provide first dollar coverage for preventive
health.
You cannot be covered by any other health insurance
that reimburses you for health expenses you incur,
unless it is another HSA qualified high deductible
health plan. However, the maximum annual contribution to
the account remains in force.
Who can contribute to my HSA?
Contributions may be made by the individual, an employer
or a family member.
How much can be contributed to an HSA?
The annual HSA contribution is limited to the amount of
your health plan’s deductible, subject to a cap of
$2,650 for single coverage and $5,250 for family
coverage (2005). Individuals over age 55 can make
additional catch-up contributions until they enroll in
Medicare.
Is the money I contribute to my HSA tax
free?
Amounts contributed to an HSA, interest earned on the
account and amounts used to pay eligible expenses are
not taxed. However, amounts used to pay non-eligible
expenses are taxed and may result in additional
penalties.
What are eligible health care expenses that
can be paid from my HSA?
An HSA may be used to pay for the diagnosis, cure,
mitigation, treatment or prevention of disease;
prescription and over-the-counter drugs; qualified
long-term care services and insurance costs; COBRA
coverage, qualified Medicare expenses (but not Medicare
Supplement insurance); qualified health insurance costs
for retirees; and more.
What happens to my HSA if I change jobs?
You may take an HSA with you when you leave your
employer.
Where can I find a high deductible health
plan in Michigan?
Information on where to find a high deductible health
plan in Michigan can be found on the HSA Insider website
at
www.hsainsider.com/find_insurer.asp
Who can open an HSA account for me?
Information on who can open an HSA account can be found
on the HSA Insider website at
www.hsainsider.com/BuildHSA.asp.
Where can I go to find more information on
HSA’s?
Additional information on HSAs is available on the U.S.
Department of Treasury website at
www.treas.gov/offices/public-affairs/hsa/,
or on the IRS web site at
www.irs.gov/pub/irs-drop/n-04-2.pdf.
Supplementary publications and information may also be
found by visiting the following links: