Health Savings

HSA Summary


Understanding Your HSA.

Health Savings Accounts (HSAs) are essentially tax-deductible IRA-type trust accounts you can use to pay for qualified medical, dental and vision expenses. An HSA combines high-deductible health insurance with a tax-favored savings account. Money in the savings account helps you pay the deductible as well as other out of pocket expenses. Once the deductible is met, the insurance starts paying. Money left in the savings account receives tax-free earnings and is yours to keep.

Because HSAs include both a health-insurance and a savings feature, they are a good way to save money on your current medical expenses and to save for future medical expenses, or even for retirement.

You own your HSA account. You decide how much to contribute, how much to save (subject to IRS guidelines), how much to use for medical expenses, and which expenses to pay from your account. Even if you change jobs or move to another state, your HSA is still your own, and you continue to keep it as you grow older.

In addition, unlike some other types of accounts, your HSA dollars will roll over at the end of the year. Unspent balances remain in your account and earn interest tax-free until you use them. This contributes to building a consumerism-mentality and encourages consumers to spend their dollars wisely.

HSA General Guidelines

An HSA-qualified high deductible health plan, (HDHP) must meet the following federal law requirements.

Self-Only HDHP Coverage -
For self-only HDHP coverage to qualify for HSA eligibility: (1) the plan must have a deductible of at least $1,100 (as indexed for inflation) and (2) the sum of the plan's annual deductible and other annual out-of-pocket expenses the insured is required to pay (including copays and co-insurance) cannot exceed $5,600.

Family HDHP Coverage -
For family HDHP coverage to qualify for HSA eligibility: (1) the plan must have a deductible of at least $2,200 (as indexed for inflation) and (2) the sum of the plan's annual deductible and other annual out-of-pocket expenses cannot exceed $11,200.

In general, the deductible must apply to all medical expenses covered by the plan; however, plans can pay for "preventative care" services, such as routine pre-natal, immunizations and mammograms at 100 percent.

Contributions to your HSA

As long as you are enrolled in an HSA-qualified HDHP, you are eligible to make contributions to your HSA. If you drop your HDHP coverage, you may no longer make contributions; however, you are still able to access the funds in your account for medical expenses at no penalty.

For 2008, the maximum amount that may be deposited is $2,900 for self-only coverage or $5,800 for family coverage. These amounts are adjusted annually for inflation. Contributions can be made as late as April 15th of the following year.

Who Can Have an HSA?

Any adult can contribute to an HSA is he or she:
  • Has coverage under an HSA-qualified "high deductible health plan" (HDHP)
  • Has no other first-dollar medical coverage, including FSAs (other types of insurance, such as specific injury or accident, disability, dental care, vision care, or long-term care are permitted)
  • Is not enrolled in Medicare
  • Is not claimed as a dependent on someone else's tax return
  • Is not covered by TRICARE

Why High Deductible Health Insurance?

To get the benefits of an HSA, the law requires that the savings account be combined with a qualified high deductible health plan (HDHP). An HDHP costs less than traditional health plans with $250 or $500 deductible coverage, because the insurance company doesn't have to process and pay claims for routine, low-dollar medical care.

HSAs In Brief

Health Savings Accounts

An arrangement that allows employer and/or employee to fund an account that reimburses the employee for eligible health care expenses.

  • Helps you pay your deductible
  • Tax-deductible deposits
  • Tax-deferred growth
  • Tax-free for medical expenses
  • Helps you save for future medical expenses or even retirement
  • Your account is yours to control and keep

HSA Eligibility

  • Must be covered by a qualified high deductible health plan
  • May not have any other first dollar coverage
  • May not be enrolled in Medicare
  • Cannot be claimed as a dependent
  • Must not be covered by TRICARE

"Catch-up" Contributions

Individuals age 55 and older can make additional "catch-up" contributions. The maximum catch-up contributions are listed below.

Year Maximum Allowable
Catch-up Contribution
2005 $600
2006 $700
2007 $800
2008 $900
2009 & after $1000

Using Your HSA

Distribution from your account is tax-free if you use the money to pay for any "qualified" medical expense (as permitted under Section 213(d) of the Internal Revenue Code). You can use the money to pay medical expenses for yourself, your spouse and your dependent children - even if they are not covered by your HDHP.

Many HSA plans provide you with a debit card to pay for expenses, so you have easy access to your HSA account.

"Qualified" Medical Expenses

Section 213(d) defines medical care broadly to include dental expenses, vision care expenses, over-the-counter drugs, alternative care, and traditional medical expenses. Consult IRS Code Section 125 for a complete list of eligible expenses. Remember only those expenses eligible under the HDHP will help satisfy your deductible.

You cannot use the money to pay for medical insurance premiums, except under certain circumstances, including individual medical insurance and COBRA.

If you are under age 65 and use your money for any other non-medical expense, there is an additional 10 percent tax in addition to the regular income taxes.

Your HSA at Retirement

After you turn age 65, or if you become disabled, the 10 percent tax penalty no longer applies and you can withdraw your money from your account for any expense and pay normal income tax at that time with no penalty.

Medical Expense Examples List

Health Savings Accounts and Health Reimbursement Arrangements (small group only) are health care financing programs that enable insureds and employees to be reimbursed for qualified medical care expenses. Qualified expenses are defined under Section 213(d) of the IRS Code.

Medical care expense is defined as amounts paid for the diagnosis, cure, treatment or prevention of disease, and for treatments affecting any part or function of the body. Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness.

An Important Note About Medical Plan Deductible vs. Tax-Qualified Medical Expenses

Although you may access funds in your Health Savings Account to pay for tax-qualified medical expenses, not all tax-qualified expenses are covered benefits under your health insurance. (example: dental treatment and dentures, vision screening and eyeglasses, vitamins and non-prescription medication, etc.) While you may receive a tax benefit on these items, they are not covered by the health insurance plan and do not accumulate toward your annual medical plan deductible.

Below are examples of both qualified and non-qualified medical expenses. For additional information, refer to IRS Publication 502 titled, "Medical and Dental Expenses", Catalog Number 15002Q. The publication is available at the IRS web site, www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Examples of Qualified Medical Expenses
Examples of
Non-Qualified Expenses
  • Acupuncture
  • Alcoholism treatment
  • Ambulance
  • Artificial limbs or prostheses
  • Artificial teeth
  • Birth control pills (by prescription)
  • Braces
  • Breast reconstruction surgery
  • Car - special hand controls or equipment to accommodate a disabled person
  • Chiropractor
  • Christian Science practitioner
  • Contact lenses and cleaning solutions
  • Crutches
  • Dental treatment
  • Dentures
  • Dermatologist
  • Diagnostic devices (blood sugar test kit)
  • Drug addiction treatment
  • Eyeglasses
  • Fertility enhancement
  • Guide dog or assistance animal
  • Hearing aids and batteries
  • Home care
  • Home improvements to accommodate a disabled person
  • Hospital services
  • Lab fees
  • Laser eye surgery
  • Lead paint removal
  • Lodging (away from home for prescribed outpatient care)
  • Long-term care premiums (certain limits apply)
  • Long-term care services
  • Nonprescription medications
  • Nursing home
  • Nursing services (including board and meals)
  • Ophthalmologist
  • Optician
  • Optometrist
  • Organ transplant (including donor's expenses)
  • Osteopath
  • Oxygen and oxygen equipment
  • Physician services
  • Podiatrist
  • Prescription medications
  • Psychiatric care
  • Psychiatrist
  • Psychologist
  • Special home for the mentally retarded
  • Special school costs for the handicapped
  • Sterilization
  • Surgery
  • Stop-smoking programs (physician prescribed)
  • Telephone or TV equipment to assist the hearing impaired
  • Therapy
  • Transportation (primarily for and essential to medical care)
  • Vasectomy
  • Weight loss programs to treat an existing disease
  • Wheelchair
  • X-rays
  • Athletic or health club membership
  • Automobile insurance premium allocable to medical coverage
  • Babysitting and childcare for a healthy baby
  • Bottled water
  • Cosmetic surgery and procedures(unless for deformity)
  • Cosmetics, hygiene products and similar items
  • Diaper service
  • Domestic help
  • Electrolysis or hair removal
  • Funeral, cremation or burial expenses
  • Hair transplant
  • Illegal operations and treatments
  • Maternity clothes
  • Nutritional supplements
  • Premiums for life insurance, income protection, disability, loss of limbs, sight or similar benefits