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Understanding HSAs

Health Savings Accounts (HSAs)

Here are a few key points:

• The Health Savings Account is a savings vehicle.  Accounts are held by a bank or other trustee.
• HSA funds belong to the account holder and accounts are portable if the employee leaves.
• Contributions are tax free, accumulate on a tax free basis, and are withdrawn on a tax free basis if used for qualified expenses.  If not used for qualified expenses, distributions are subject to income tax + 10% penalty.
• Contributions can be made by the employer, employee, or anyone else, so long as the account holder is covered by a qualified high deductible health plan and is not covered by any other non-qualified health plan.
• A qualified health plan has a deductible of at least $1,150 for individuals and $2,300 for families in 2009, and pays no first dollar benefits except for preventive care (non-preventive co-pay benefits, such as office visits or Rx, are not allowed below the deductible).
• For family coverage, no benefits can be paid to any familiy member until the entire family deductible is met.
• A medical flexible spending account is a non-qualified health plan and is considered 'family' coverage that will disqualify both spouses from making or receiving HSA contributions.
• The account holder is responsible for how funds are spent and can access funds without submitting documentation to an administrator, usually with a debit card.  Proof of qualified expenses must be saved for tax purposes, however.
• Funds can be spent while enrolled in a high deductible plan or saved and spent later, even when no longer covered by a HDHP.  

Advantage: Personal accounts give employees an incentive to shop for health care, ask about price, avoid unnecessary care and save for future expenses.