Who is my HSA Administrator?
HSA Administrators are banks, insurance companies or other approved institutions that are also known as ‘Trustees’ of your HSA account. The financial management of your tax-deferred HSA account is administered by the trustee. The HSA Administrator does not, however, administrate your health plan.
Depending on your HSA Administrator, you may be charged a variety of fees, including an initial setup fee, monthly maintenance fee and check fee.
Before setting up your HSA, be sure to carefully evaluate your HSA Administrator’s fees and regulations.
How Much Can I Contribute to an HSA?
As with an IRA, the Internal Revenue Service determines tax-deductible contribution levels to HSAs annually. For 2006, the following guidelines apply:
- For eligible individual coverage, the maximum contribution is the lesser of $2,700 or the HDHP's annual deductible.
- For eligible family coverage, the maximum contribution is the lesser of $5,450 or the HDHP's annual deductible.
- For individuals who are 55 or older, an additional ‘catch-up' contribution of up to $700 is allowed.
- Contributions are pro-rated based on the number of months of the year a taxpayer is eligible for an HSA.
- The maximum annual out-of-pocket amount for HDHP individual coverage is $5,250
- The maximum annual out-of-pocket amount for HDHP family coverage is $10,500.
- The minimum deductible for individual coverage HDHPs is $1,050.
- The minimum deductible for family coverage HDHPs is $2,100.
The tax-free eligible expenses on which you spend your HSA funds are also known as Qualified Medical Expenses. There are many examples of Qualified Medical Expenses, some of which appear below.
Here are a few important tips to remember regarding Qualified Medical Expenses:
- The expense should be primarily for the prevention of a physical or mental defect or illness. The determination of whether the expense qualifies often hangs on the word ‘primarily.’
- Qualified expenses must be incurred on or after the day the HSA was established
- You, your spouse and any dependents may have your medical expenses paid for out of your HSA, even if your spouse or dependents aren’t covered by the HDHP.
- Health insurance premiums do not qualify as medical expenses, unless:
- You are receiving unemployment compensation
- You are paying for COBRA continuation coverage
- Certain qualified Long Term Care Insurance Premiums
There are many expenses not covered under standard health insurance policies which can be paid for out of an HSA, such as contact lenses, chiropractic care, physical therapy and over-the-counter drugs.
Some examples of Qualified Medical Expenses include:
Birth Control Pills (by prescription)
Breast Reconstruction Surgery (mastectomy)
Car Special Hand Controls (for disability)
Certain Capital Expenses (e.g., for the disabled)
Christian Science Practitioners
Cosmetic Surgery (if due to trauma or disease)
Disabled Dependent Care Expenses
Drug Addiction Treatment (inpatient)
Health Institute (if prescribed by physician)
H.M.O. (certain expenses)
Lead-Based Paint Removal
Learning Disability Fees (prescription)
Legal Fees (if for mental illness)
Lodging (for out-patient treatment)
Long-Term Care (medical expenses)
Long-Term Care Insurance (up to allowable limits)
Meals (associated with receiving treatments)
Medical Conferences (for ill spouse/dependent)
Mentally Retarded (specialized homes)
Operating Room Costs
Operations - Surgical
Organ Transplant (including donor’s expenses)
Out-of-pocket expenditures and deductibles for your spouse or dependent even if insured under a non-HSA health plan
Out-of-pocket expenditures while enrolled in
Oxygen and Equipment
Personal Care Services (for chronically ill)
Qualified Long-Term Care Services
Smoking Cessation Programs
Special Education for Children (ill or disabled)
Telephones and Television for the Hearing
Transportation Expenses for Health Care
Vitamins (if prescribed)
Weight Loss Programs
Wig (hair loss from disease)
An HSA-Eligible Plan is a High Deductible Health Plan (HDHP) that is qualified for use with a Health Savings Account. Qualified plans have the following characteristics:
- A minimum deductible for Individual and Family coverage
- A maximum out-of-pocket limit (including deductibles and co-pays) for Individual and Family coverage.
Health Insurance.com easily identifies HSA-Eligible plans with the following icon:
What is an HDHP?
A High Deductible Health Plan (HDHP) is exactly what it sounds like: a health insurance plan that covers an individual or family with a high out-of-pocket deductible. With a higher deductible, the plan will naturally have lower monthly premiums – a key benefit to the Health Savings Account formula.
For 2006, the Internal Revenue Service has set the minimum deductible amount for an HSA-Compatible HDHP at $1,050 for individual plans and $2,100 for family plans.
Ask your health plan representative if your plan qualifies to be an HSA-Compatible HDHP.
- Q: Who is eligible for a Health Savings Account?
- To be eligible for a Health Savings Account, an individual must be covered by a HSA-qualified High Deductible Health Plan (HDHP) and must not be covered by other health insurance that is not an HDHP. Certain types of insurance are not considered “health insurance” (see below) and will not jeopardize your eligibility for an HSA.
- Q: Can I get an HSA even if I have other insurance that pays medical bills?
- You are only allowed to have auto, 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.
- Q: Does the HDHP policy have to be in my name to open an HSA?
- No, the policy does not have to be in your name. As long as you have coverage under the HDHP policy, you can be eligible for an HSA (assuming you meet the other eligibility requirements for contributing to an HSA). You can still be eligible for an HSA even if the policy is in your spouse’s name.
- Q: 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.
- Q: 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.
- Q: 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.
- Q: 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.
- Q: Question
- You can have both types of accounts, but only under certain circumstances. General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA. If your employer offers a “limited purpose” (limited to dental, vision or preventive care) or “post-deductible” (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA.
- Q: My employer offers an HRA. Can I have both an HRA and an HSA?
- You can have both types of accounts, but only under certain circumstances. General Health Reimbursement Arrangements (HRAs) will probably make you ineligible for an HSA. If your employer offers a “limited purpose” (limited to dental, vision or preventive care) or “post-deductible” (pay for medical expenses after the plan deductible is met) HRA, then you can still be eligible for an HSA. If your employer contributes to an HRA that can only be used when you retire, you can still be eligible for an HSA.
- Q: My spouse has an FSA or HRA through their employer. Can I have HSA?
- You cannot have an HSA if your spouse’s FSA or HRA can pay for any of your medical expenses before your HDHP deductible is met.
- Q: 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.
- Q: Does my income affect whether I can have an HSA?
- There are no income limits that affect HSA eligibility. However, if you do not file a federal income tax return, you may not receive all the tax benefits HSAs offer.
- Q: Can I start an HSA for my child?
- No, you cannot establish separate accounts for your dependent children, including children who can legally be claimed as a dependent on your tax return.
- Q: I’m a single parent with HDHP coverage but have a child/relative that can be claimed as a dependent for tax purposes, and this dependent also has non-HDHP coverage. Am I still eligible for an HSA?
- Yes, you are still eligible for an HSA. Your dependent’s non-HDHP coverage does not affect your eligibility, even if they are covered by your HDHP.
The funds in your HSA may be used to pay for any qualified medical expenses (see below) without penalty. Your HSA will give you a checkbook or debit card that can be used to pay for those expenses.
Additionally, you don’t need approval from your HSA administrator when you use the funds in your HSA and you don’t need to submit medical receipts (but you should save them as you would for any tax deductible items). The money in your HSA is yours to save and spend as you wish.
Any funds used for expenditures other than qualified medical expenses are subject to income taxes and a 10% penalty. Persons age 65 or older using their HSA funds for non-qualified expenses avoid the penalty fee, but must pay income taxes on that money as if it was retirement income.
It’s also important to remember that you must establish an HSA before you incur any medical expenses you wish to qualify.
Qualified Medical Expenses
Qualified Medical Expenses are the wide-range of medical costs that can be paid for with the tax-deductible savings in your HSA. These expenses include:
- Prescription and over-the-counter drugs
- Dental care
- Vision care, including laser eye surgery, glasses and contact lenses
- Long-term care
- Medically related transportation and lodging
- Insurance deductibles and co-payments
HSA’s cannot be used to pay health insurance premiums unless you are receiving federal or state unemployment benefits, or if you’re age 65 or older and the plan is neither Medicare nor a supplemental policy.
For a more complete listing of qualified medical expenses, see IRS Publication 502.
Depending on whom you choose as your HSA Administrator, the risk of your investment is usually proportionate to the potential return.
Interest bearing HSA accounts through banks are generally FDIC insured and are therefore the most secure. However, such accounts have a lower rate of return than, say, a mutual fund HSA account, which may offer a higher return with greater risk - and without being federally insured.
As always with an HSA, the choice is yours. Determine your comfort level, then choose your administrator and HSA account accordingly.
What are my options?
Like an IRA, how you invest your savings within an HSA is up to you. While financial institutions differ, most will offer one or more of the following HSA investment options:
- Certificates of Deposit
- Mutual Funds
- Money Market Funds
- Interest-bearing saving accounts
HealthInsurance.com outlines the options from several of the leading HSA Administrators to help you decide which options work best for you before setting up your account.
2006 IRS Guidelines
New Annual Contribution Levels for HSAs:
- For 2006, the maximum annual HSA contribution for an eligible individual with self-only coverage is $2,700. (Note: for any individual, the maximum contribution is the lesser of the indexed amount or the deductible of the HDHP.)
- For family coverage the maximum HSA contribution is $5,450.
- Catch up contribution for individuals who are 55 or older is increased by statute to $700 for 2006.
- Both the HSA contribution and catch up contribution are pro-rated based on the number of months of the year a taxpayer is an eligible individual.
New Amounts for Out-of-Pocket Spending on HSA-Compatible HDHPs:
- The maximum annual out-of-pocket amounts for HDHP self-coverage increase to $5,250 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $10,500.
Minimum Deductible Amounts for HSA-Compatible HDHPs:
- For 2006, the minimum deductible for HDHPs increases to $1,050 for self-only coverage and $2,100 for family coverage.
Note that a fiscal year HDHP that satisfies the requirements for an HSA-compatible HDHP on the first day of its fiscal year may apply that deductible for the entire fiscal year.
Why Use HealthInsurance.com for my HSA?
HealthInsurance.com offers a convenient and comprehensive selection of HSA-eligible health insurance plans.
Whatever your needs:
- Individual plans
- Family plans
HealthInsurance.com indicates which plans are HSA-eligible with the following icon:
HealthInsurance.com starts you on your way to tax-free medical expense savings, tax-deferred retirement savings, lower premiums and greater medical freedom.
Health Savings Accounts (HSAs) are a relatively new way for Americans to pay for their healthcare. Like an IRA, the money deposited into an HSA is completely tax-deductible on your federal tax return. The health accounts also are shielded from state income taxes in most of the country, but seven states have declined to provide an exemption: Alabama, California, Maine, Massachusetts, New Jersey, Pennsylvania and Wisconsin. As with all things that have to do with taxes, please rely on your tax advisor for tax advice.
These accounts, however, can be accessed whenever individuals need them to pay for qualified healthcare expenses. In the meantime, their money earns tax-free interest for future medical costs.
Some HSA Benefits Include:
- Greater control over health care costs
- Greater flexibility in choosing a physician
- Lower monthly premiums
- Tax-Free savings
Your HSA Administrator will send you a statement at the end of each year outlining how much you contributed to your HSA. As long as that amount does not exceed the maximum allowable contribution, it's tax-deductible on your federal tax return. The health accounts also are shielded from state income taxes in most of the country, but seven states have declined to provide an exemption: Alabama, California, Maine, Massachusetts, New Jersey, Pennsylvania and Wisconsin.
HSA contributions made through payroll deductions are generally made with pre-tax income. If you fall into this category, you do not need to claim the deduction as your income has already been reduced. However, any contribution made by you or any person other than your employer on your behalf may be claimed as a deduction.
HSA deductions are considered above the line, meaning they don't need to be itemized when you file your taxes.
If you are self-employed, you may also be able to deduct your health insurance premiums as long as the deduction does not exceed the amount of net income from your business and you are not eligible to participate in a subsidized health plan by an employer or your spouse's employer.
If your HDHP coverage begins after January 1, contribution limits are pro-rated based on the number of full months the HDHP is in effect.
Unused contributions remain in your account year to year until you use them and any interest or earnings on the assets in your account are tax-free as long as they are used for medical expenses. Early withdrawal is subject to income tax and potential penalty.
Once you reach retirement age, your HSA account acts just like a traditional IRA ¡V non-medical withdrawals are considered tax-deferred and are subject to income tax (but no penalty).
As with all things that have to do with taxes, please rely on your tax advisor for tax advice.
Established in 2003 by Congress, Health Savings Accounts (HSAs) are designed to help you save for qualified medical and retiree health expenses tax-free. The option of an HSA gives you greater control of how their health care dollars are spent, as well as a broader selection of physicians from which to choose. With an HSA, you enjoy tax reductions as well as lower health insurance premiums.
Health Savings Accounts are made up of two components: a qualified High Deductible Health Plan (HDHP) and an HSA Administrator. Together, these components can save you a great deal of money on healthcare.
Generally, HDHPs have lower monthly premiums than the average insurance plan, as their deductibles are much higher. The money saved on insurance costs can be put into an HSA to cover the higher deductible, after which your HDHP takes over.
An HSA Administrator is a financial institution that oversees your Health Savings Account.
Contribution limitations to an HSA are determined by the IRS and may be withdrawn at any time without penalty to pay for qualified medical expenses by check or ATM. Like an IRA, the account is yours - not your employer’s. It’s your money and you decide how to invest the savings within the HSA. However, your employer may make contributions to your HSA. Any money remaining in your HSA at the end of the year continues to earn interest in the HSA for future medical expenses.
For individuals age 55 and older, additional ‘catch-up’ contributions are allowed to encourage saving for health expenses after retirement. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA.