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Health Savings Accounts

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What is a HSA?

A health savings account, or HSA, works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Everyone (not just the self-employed or small businesses) with a qualified high deductible insurance plan is eligible for a tax-deductible HSA.

2018 H S A Limits – Increased

A comparison of the 2017 and 2018 limits is shown below:

Contribution and Out-of-Pocket Limits for Health Savings Accounts
and High-Deductible Health Plans

For 2017

For 2018

Change

HSA contribution limit(employer + employee)

Individual $3,400

Family: $6,750

Individual  $3,450

Family: $6,900

Individual: +$50

Family: + $150

HSA catch-up contributions(age 55 or older)*

$1,000

$1,000

No change**

HDHP minimum deductibles

Individual: $1,300

Family: $2,600

Individual: $1,350

Family: $2,700

Individual: + $50

Family: + $100

HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums)

Individual: $6,650

Family: $13,100

Individual: $6,550

Family: $13,200

Individual: +$100

Family: + $100

* Catch-up contributions can be made any time during the year in which the HSA participant turns 55.

** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change.

 
 

The Basics

 Why High Deductible Health Insurance?

To get the benefits of an HSA, the law requires that the savings account be combined with High Deductible Health Insurance. High Deductible Health Insurance costs less than traditional low deductible coverage, because the insurance company does not have to process and pay claims for routine, low-dollar medical care.

For 2018 a High Deductible Insurance Plan is a health plan with a minimum deductible of $1,350 for self-only coverage and $2,700 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $6,650. for self-only coverage and no more than $13,300 for family.

 How does a Health Savings Account work?

You obtain coverage under a qualified health insurance plan with a minimum deductible of $1,350 for singles and $2,700 for families. You are then allowed to deposit up to $3,450 for singles or $6,900 for families into your Health Savings Account for 2018. Older Americans can save even more. You do not have to itemize your deductions on your federal income taxes to deduct your contributions to an HSA. You can use the savings account to pay for your lower-dollar medical expenses, or those that are not covered by the health plan. Once you meet the deductible, the health insurance covers your medical expenses as defined in the policy.

 How much does HSA-qualified health insurance cost?

Because HSA-qualified health plans all have high deductibles, they typically have much lower premiums than traditional health insurance plans. The plans are individually priced based on age, residence, health history, build, date of enrollment, type of plan, deductible, PPO network options selected, billing method and other services.

 How do I know if I will qualify for a High Deductible HSA Insurance?

When you apply for HSA-qualified plan, an underwriter will review your application to determine your eligibility. If you have pre-existing health concerns, it may take longer for the insurance carrier to issue a policy. If you are concerned about having to submit your initial payment with your application and then having to wait for an answer.

You can also speak to an advisor with www.obfs.net, who can conduct a pre-screen with the insurance company before submitting the application to get an initial opinion from the underwriting department.

Underwriting guidelines for HSA-qualified plans are normally similar to the company’s underwriting guidelines for any of the other policies they may offer.

 When you are paying for your medical expenses from your HSA account, how does your insurance company know when you have paid up to you deductible?

There are two options…

If you use an in-network provider, they can file your claim for you. This is the smart way to work things, as it will ensure that you receive the company’s discounted PPO price, instead of having to pay the full price.

Or, you could simply save the bills and submit them to the company yourself, either all at once, or after you have reached a certain limit in bills.

 How do I establish a Health Savings Account?

To establish a health savings account, you must own an HSA-qualified high deductible health insurance plan. First, review all the information on the HSA your plan selections and familiarize yourself with your HSA . Apply for health insurance coverage, and then set up your HSA Account.

Qualifying Plans

 What is a Qualifying High Deductible Health Plan?

Only certain plans are eligible to be used in conjunction with Health Savings Accounts. For 2018, a high deductible insurance plan is a health plan with a minimum deductible of $1,350 for self-only coverage and $2,700 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $6,650 for self-only coverage and no more than $13,300 for family coverage. Other restrictions apply, including reporting requirements established by the IRS.

 How do I know if my health plan is a Qualifying High Deductible Health Plan?

The health insurance company or plan administrator will provide a written statement verifying this status. The words “Qualifying High Deductible Health Plan” or a reference to IRC Section 223 will be included in the declaration page of the policy or another official communication from the insurance company. If this documentation is not available, it is NOT a qualifying plan.

 What makes a health insurance plan HSA-qualified?

The plan must meet the deductible and other design requirements that are adjusted each year and the health insurance company must agree to report the list of qualifying policyholders to the IRS. The Treasury will review and qualify health plans at the request of the sponsoring organization. Not all high-deductible health insurance plans are HSA-qualified even if they meet deductible and out-of-pocket requirements.

 Why are all health insurance policies that meet the stated requirements for High Deductible Health Plans not considered HSA-qualified?

In large part because the health insurance company must agree to report the list of qualifying policyholders to the IRS. Health insurance companies must also be willing to meet both the federal requirements as well as the state insurance requirements. Some sticking points are “per person deductibles” and “mandated coverage” that may be required under state insurance laws but are disallowed under the federal HSA laws. This may involve considerable expense that insurance companies are not willing to assume at this time .

 With a high deductible health plan, will I have to pay full pay full price for doctors visits, or will I receive a PPO discount?

Most qualifying high-deductible health plans are PPO plans, though there are some indemnity plans that do not have a PPO network. If you have a PPO plan, any visits to a doctor in your PPO network will be re-priced according to the discount negotiated by the PPO, before you are billed. Having access to a PPO network can mean substantial discounts in what you pay for your health care, even before you meet your deductible.

 Am I eligible for an HSA if I have a HSA-qualified plan as my primary coverage but am also covered by my spouse's employer-provided (non-HSA) plan?

You can only contribute to your HSA only when you have an HSA-qualified plan. If you are also covered by a spouse’s non-HSA plan, then you would no longer qualify to contribute to your HSA. However, you can still use the money in it to pay for qualified medical expenses, or you can let it continue to grow on a tax-deferred basis.

 

HSA Contributions

 How much can be contributed to an HSA in 2017?

Annual contributions for 2018 are capped at either the high deductible of $3,450 for an individual and $6,900 for a family.

  • The annual maximum HSA contribution will change each January 1st based on the Consumer Price Index (CPI). There are no maximum limits on the account accumulation.
  • The legislation provides for an additional contribution (and tax deduction) for those who turn age 55 before the end of the tax year. The additional contribution amount is $1,000. If you had HDHP coverage for the full year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year.
  • If both spouses are eligible individuals and both spouses have established an HSA in their name and turn 55, then both can make catch-up contributions. If only one spouse has an HSA in their name, only that spouse can make a “catch-up” contribution.

Contributions may be made by anyone on behalf of the account beneficiary.

 What are the eligibility requriremnets for contributing to an HSA account?

To be eligible to contribute, the individual:

  • Must be covered by a qualifying High Deductible Health Plan (HDHP)
  • Cannot be on Medicare
  • Cannot be covered by other health insurance that is not an HDHP (excluding accident plans or dental plans)
  • Cannot be eligible to be claimed as a dependent on another person’s tax return

 Can another person who is over 65 contribute to an HSA of an individual under the age of 65?

Yes, as long as the contribution is made into an account of an eligible individual .

 Can individuals make their entire contribution to the HSA at the beginning of the year?

Individuals can contribute their entire contribution at the beginning of the year, up to the applicable contribution limit. They might, however, have to make a corrective distribution later in the year if the individual’s eligibility status changes during the year (for instance, if they become covered under another non-qualifying plan, or if their HDHP coverage ends).

 Can an individual contribute a certain amount of dollars over the deductible amount to cover the set up and administrative fees of the HSA account?

Fees can be paid directly to the HSA administrator without impacting the contribution limit. Alternatively, administrative fees can be paid from the HSA without incurring taxable income.

 Does my HSA need to be set up with my Health Insurance company?

No. The HSA can be set up with any qualified trustee or custodian. Many people choose to open their HSAs with a provider that is different from their insurance company to take advantage of lower fees or greater investment options, and to establish independence in the event that they change insurance providers.

 Do I have to have 'earned income' from a job (as opposed to income from dividends and interest) in order to deduct my HSA contributions for income tax purposes?

HSA contributions are tax deductible, regardless of the source of your income.

 Do the tax benefits phase out at certain income levels?

Unlike many other tax breaks, there aren’t any income limits. Anyone who buys a qualified high-deductible policy can open an HSA.

 Do contributions to an HSA in any way effect my ability to contribute to an individual retirement account?

No. Your HSA contributions won’t affect your IRA limits — $5,000 per year or $6,000 for those over 55. It’s just another tax-deferred way to save for retirement, with the added advantage being that you can withdraw funds tax-free if they are used to pay for medical expenses.

 Do you recommend funding my HSA with a rollover from my IRA?

You can fund your HSA with a one-time rollover from your IRA. If you can afford to fully fund your HSA without using a rollover from your IRA, you will get a full tax-deduction for your HSA contribution. However, if you do not have enough money available to fully fund your account, moving money from your IRA to your HSA is a smart move. It will protect this money from ever being taxed if it is used to pay qualified medical expenses.

 How does a spouse's health coverage impact contribution limits?

If you have an HSA, but your spouse has separate health coverage, the following special rules may apply:

  • If your spouse has non-qualifying family coverage that includes you, it makes you an “ineligible individual”, and you may not contribute to an HSA.
  • If your spouse has an individual HSA-qualifying plan, then you would have to subtract your spouses contribution from the maximum that you could otherwise contribute.

 Can I reimburse my account for Admin fees, recurring maintenance fees and setup fees?

Yes, you can deposit money over and above your contribution limit to cover these fees.

 Can I reimburse my account for trading fees if i trade stocks or other securities?

No, it appears that these charges must be paid for from within the HSA.

 

HSA Distributions

 For what purpose can HSA funds be used?

The funds belong to you. Funds can be withdrawn for any purpose, at any time. However, if funds are withdrawn for reasons other than to pay for qualified medical expenses by someone under age 65, the amount withdrawn is taxable and subject to a 20% penalty by the IRS. After age 65, there is no penalty for non-qualified withdrawals but amounts are taxable.

Funds used to pay for the following are tax-free and penalty-free:

  • Qualified medical expenses as defined under Section 213 of the IRS Code (See IRS Publication 502: Medical and Dental Expenses). This is the same code section that governs MSAs.
  • COBRA insurance
  • Qualified long-term care insurance and expenses
  • Health insurance premiums for individuals receiving unemployment compensation
  • Medicare and retiree health insurance premiums, but not Medicare Supplement premium

Funds may be used for eligible expenses for your spouse or dependents, even if they are not covered by the HDHP.

 Can I use my HSA to pay for medical expenses incurred before I set up my account?

No. You cannot reimburse qualified medical expenses incurred before your account is established. We recommend you establish your account as soon as possible once you obtain qualifying health insurance coverage.

 Can I pay for my health insurance premiums from my HSA?

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.

 What tax return information will I get from my HSA administrator?

In January you should receive Form 1099-SA, which will indicate the total distributions you took from your account during the previous year, and form 1099-INT or other similar form indicating your earnings on the account during the year. Distributions are not taxed if you spent the money on qualified medical expenses. Growth on the account is not taxed unless there is distribution of this money for non-qualified purposes.

IRS Form 1099-SA reports the distributions you took from your HSA. It’s mailed in January of each year. IRS Form 5498-SA is mailed in May so it reflects all contributions for the previous year, which can be made up until the deadline for filing the federal income tax return for the current year.

 Does the HSA administrator 'approve' medical expenses, or keep track of them?

No. It is your responsibility to keep track of your own qualified-medical expenses. Individual contributions and taxable distributions should be reported on form 1040 .

 Do I have to reimburse myself from my HSA with a certain time period of incurring the medical expense?

No. There is no time limit for when you can reimburse yourself for your health care expenses. You should keep legible receipts of your medical expenses, and records of when you do reimburse yourself.

 What happens if I withdrawn money from my HSA to pay medical bill, but than later I am reimbursed by my insurance company for that medical expense?

That is what is referred to as an “erroneous distribution.” The account holder can repay the mistaken distribution by April 15 of the following year with no penalty if there is reasonable evidence that the original distribution was made in good faith, that it was a qualified medical expense. The repayment is classified as an “adjusted entry”, not a contribution; therefore it would not count “twice” toward the yearly maximum.

 What happens at age 65?

When you turn 65 you become eligible for Medicare. If you enroll in Medicare, you are no longer eligible for coverage under a high-deductible health plan. You may still use tax-free HSA funds to pay qualified medical expenses,Medicare Part D premiums, and retiree health insurance premiums. You are also entitled to take out any amount from your account for any reason, penalty free (though you must pay income taxes on the withdrawals at that time). There are no requirements laid out in the law at the present time indicating when you must start taking distributions. However, we would expect the IRS to treat this like an IRA. If that is the case, then you must start taking distributions from your account at age 70.

 What happens to my HSA if I die?

Your HSA will be treated as your surviving spouse’s HSA, but only if your spouse is the named beneficiary. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary.

 What happens if I become disabled?

If you become permanently disabled, you may withdraw your funds at any time, without penalty. Withdrawals will be subject to income tax at that time .

 What happens to my H S A if I cancel my HDHP coverage?

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.