Health Savings Accounts (HSAs) allow individuals with a high deductible health plan to contribute pre-tax funds to pay for qualified medical expenses. To be eligible, one must have an HDHP with minimum annual deductibles of $1,150 for individuals or $2,300 for families in 2009. Contribution limits are $3,000/$3,050 for individuals and $5,950/$6,150 for families in 2009/2010. Funds can be used to pay medical expenses like deductibles, co-pays, and certain insurance premiums. Both employees and employers can contribute to the same HSA each year.
Health Savings Accounts (HSAs)- What they are and how to use them-2009
1. Health Savings
Accounts
Health Savings Accounts
What They are and
How to Use Them
2. Health Savings Accounts
Outline
• Definition of an HSA
• Individuals Eligible to Contribute to an HSA
• Requirements of an HDHP
• Contribution Limits
• Reimbursable Expenses
• IRS and Legislative Clarification of HSAs
• Comparison of HSAs, MSAs, HRAs, and FSAs
3. Health Savings Accounts
Definition of a Health Savings Account
• Medicare Prescription Drug, Improvement and
Modernization Act of 2003
• Effective January 1, 2004
• Tax exempt trust owned by the individual
• Used to pay for qualified medical expenses
• Modeled after Archer MSAs
4. Health Savings Accounts
Individuals Eligible to Contribute to an HSA
• Covered by a high deductible health plan as of first day
of month
• Not also covered by another health plan that is not a
high deductible health plan (with some exceptions)
• Individuals covered by an FSA which includes a 2½
month grace period can be eligible to contribute to
HSA the following year if:
– Have a zero FSA balance at end of plan year, or
– Transfer unused balance into HSA at end of FSA plan year
5. Health Savings Accounts
Individuals Eligible to Contribute to an HSA
• Cannot be a dependent on another tax return
• Cannot be entitled to Medicare benefits
• Shareholders in an S-corp are eligible
• Contributions can be made by employees through a
cafeteria plan or on their own (tax deductible)
• Employers
6. Health Savings Accounts
Requirements of an HDHP
Type of Minimum Annual Maximum out of
Coverage Deductible pocket
expenses*
Single $1,150 / $1,200 $5,800 / $5,950
Family $2,300 / $2,400 $11,600 / $11,900
*Includes the deductible
Figures reflect 2009 / 2010 calendar years and are adjusted annually (by June 1st).
7. Health Savings Accounts
Requirements of an HDHP
• May not pay benefits until the deductible has been
satisfied, except for preventive care
• Prescription drug coverage must be subject to the
deductible
• Network plans are not required to comply with the
deductible and out-of-pocket requirements for out-of-
network services
• Embedded deductibles are not permitted under family
coverage unless they meet HSA requirements
9. Health Savings Accounts
Contribution Limits
• For each month covered under an HDHP, an eligible
individual may contribute 1/12th of $3,000 / $3,050 for
self-only coverage and 1/12th of $5,950 / $6,150 for
family coverage*
• Individuals who are eligible to contribute to an HSA in
the last month of a taxable year can contribute an
amount equal to the annual HSA contribution amount
• HSA contribution limit is reduced by any contributions
made to an MSA in the same year
*2009 / 2010 amounts; HSA contributions do not have to be made in equal
amounts each month and can be made in a lump sum
10. Health Savings Accounts
Contribution Limits
• If an employer contributes to the HSA account, it must
make comparable contributions for all participating
employees*
• However, an employer may exclude “highly
compensated employees” (as defined by the IRS)
when determining whether contributions are
comparable
• Thus, an employer can make greater HSA
contributions to lower wage employees
*Does not apply to employer contributions made through a cafeteria plan
11. Health Savings Accounts
Contribution Limits
• Catch-up contributions Individuals age 55 and older
by the end of the taxable year may contribute an
additional $1,000 to their HSA in 2009 and beyond
• Rollover contributions can be accepted from another
HSA or MSA and are not subject to the annual
contribution limit
12. Health Savings Accounts
Contribution Limits
• Can make a one time transfer of an employeeʼs Health
FSA or HRA balance to an HSA, not subject to the
annual contribution limit
• Employees can make a one time rollover from an IRA
to an HSA, but it does apply to the annual contribution
limit
13. Health Savings Accounts
Contribution Limits
• Both the employee and employer may each contribute
to the HSA in the same year
• Contributions which exceed the limits are subject to an
excise tax and regular income tax (not including
appropriate rollover amounts)
14. Health Savings Accounts
Reimbursable Expenses
• Qualified medical expenses for account beneficiary,
spouse, or dependents
• Qualified medical expenses as defined in 213(d)
– COBRA premiums
– health insurance while receiving unemployment insurance
– qualified LTC premiums
– Any health insurance premiums paid, other than Medicare
supplemental policies, by individuals age 65 and over
15. Health Savings Accounts
Clarification of HSAs
• The IRS continues to issue guidance regarding HSAs.
This can be found on the United States Treasury
Website: http://www.treas.gov/offices/public-affairs/
hsa/technical-guidance/
• Further, when new HSA related legislation is passed,
the legislation can be found on the Treasury Website:
http://www.treas.gov/offices/public-affairs/hsa/
index.html
16. Health Savings Accounts
Clarification of HSAs
• The Treasury Website is also a great place to look for
press releases and consumer friendly government
materials regarding HSAs: www.treas.gov/offices/
public-affairs/hsa/
17. Health Savings Accounts
Comparison of HSAs, MSAs, HRAs, and FSAs
• Employer and employee can contribute in the same
year
• May contribute $3,000 / $3,050 for individual coverage
and $5,950 / $6,150 for family coverage in 2009 / 2010
• HSA has lower deductibles, no maximum deductible
• No substantiation requirement
• No penalty if withdrawals are due to death, disability, or
if made after eligible for Medicare