What is an HSA?
Health Savings Accounts are savings accounts that
allow individuals to pay for qualified out-of-pocket
medical expenses using pre-tax dollars. Unlike more
traditional health care accounts, the funds in an HSA
belong to the individual, not the employer or the
insurance company, and travel with the individual. In
order to take advantage of this tax deferred savings new
benefit, individuals must purchase a specific type of
health insurance coverage called a High Deductible
Health Plan (HDHP).
What is an HDHP?
An HDHP is a different type of health plan. Under an
HDHP individuals are covered for large expenses and pay
for their day-to-day expenses, usually up to the amount
of the deductible. In order to meet the requirements an
HDHP must have a deductible of at least $1,100 for
individuals or $2,200 for families plus certain total
out-of-pocket expense maximums.
What are the benefits of an HSA
An HSA is very similar to an IRA in that:
- Pre-tax dollars can be used to pay for qualified
medical expenses
- You are in control of more of your health care
decisions
- Funds left in an HSA can grow, tax deferred
- Your account stays with you even if you change
employers
- After age 65 you can withdraw your funds and
they are only taxed as ordinary income
What expenses are qualified medical expenses?
Qualified expenses include most normal medical
expenses such as:
- Doctor visits
- Prescription and over the counter drugs
- Dental services
- Vision care (including contact lenses, glasses
and Lasik surgery)
- View a complete list of
qualified medical expenses.
How do I open an HSA?
Opening an HSA is very similar to opening a checking
account. All you need to do is complete an
Health
Insurance Quote Form which asks basic information such as,
name, address, date-of-birth,
phone number, and e-mail.
You may also want to authorize a co-signer on your
HSA. An HSA is an individual account and cannot be held
jointly; however, we allow for co-signers. An HSA can be
used for the benefit of other eligible members in the
family (regardless of their insurance coverage) so it is
often beneficial for anyone opening an HSA to allow
their spouse to have signing privileges. It generally
makes sense to only open one HSA per family rather than
split the contribution between two spouses’ accounts.
As a custodial or trust account, you are permitted
and encouraged to name a beneficiary for your HSA at the
time you open it. At the time of death, a spouse
beneficiary will have the option to treat the account as
his or her own HSA and continue to use the account as an
HSA. A non-spouse beneficiary will not be allowed to
keep the assets in an HSA and will have to include the
amount in the HSA as income. If you do not name a
beneficiary, any balance remaining in your HSA will go
to your estate.
How much can I contribute to an HSA?
Individuals are allowed to contribute up to $2,850 in
2007. For individuals the exact calculation is the
lesser of:
(1) $2,850
(2) the prorated annual deductible of your health
planIf an individual
does not stay in the HSA-eligible plan 12 months
following the last month of the year of the first
year if eligibility, the amount which could not have
been contributed will be included in income and
subject to a 10 percent additional tax.
Families are eligible to contribute up to $5,650 in
2007. For families the exact calculation is the lesser
of:
(1) $5,650
(2) the prorated annual deductible of your health
planIf an individual
does not stay in the HSA-eligible plan 12 months
following the last month of the year of the first
year if eligibility, the amount which could not have
been contributed will be included in income and
subject to a 10 percent additional tax.
Confused? Don't worry, our
2006 HSA Contribution Worksheet walks you through
the calculations.
How do I make contributions?
You will generally open your HSA with an initial
contribution. This could be a check, an ACH withdrawal
from your checking account or a contribution from your
employer made payable to the HSA custodian or trustee.
You may then want to set up an automatic deposit plan
for future contributions. An automatic monthly deposit
allows for you to fund your HSA on a regular basis
without any hassle. If you prefer, you can make your
full annual contribution all at once. Your employer may
also make contributions on your behalf or as a benefit
to you.
How do HSA's compare to FSA's and
Health Reimbursement Arrangement
(HRA) Health Savings Accounts:
- Financed with employee pre-tax dollars and/or
employer contributions
- Distributions for qualified medical expenses are
tax free (employees required to substantiate)
- Account balance belongs to employee and
rolls-over from year to year
- Amount withdrawn after age 65 taxable as
ordinary income
Flexible Spending Accounts
- Financed with employee pre-tax dollars
- Distributions for qualified medical expenses are
tax free (compliance determined at time of payment)
- Account balance does not roll from year to year;
use it or lose it
Healthcare Reimbursement Accounts
- Financed with employee pre-tax dollars and/or
employer contributions
- Distributions for qualified medical expenses are
tax free (compliance determined at time of payment)
- Unused funds may be carried to future years
- HSA
FAQ
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Health Savings Accounts Minnesota
