Health Savings Account FAQs

mycafeteriaplan bullet imageHealth Savings Account Frequently Asked Questions (FAQ)            

Questions pertaining to health saving accounts (HSA)

mycafeteriaplan bullet imageWhat is a Health Savings Account (HSA)?

An HSA is a special bank account used to pay for current and future medical expenses tax-free.

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mycafeteriaplan bullet imageWhy would I want an HSA?

An HSA is a way to help you save money on your medical expenses. The main advantages of an HSA are:

  • Tax Savings: An HSA account allows for tax free contributions, tax free distributions and tax free growth on accumulating balances.
  • Affordability: You may be able to lower your health insurance premiums.
  • Ownership: The account belongs to you (not your employer) and is portable if you change jobs.
  • Control: You make all the decisions about the account management including how much to put in, how much to take out and how to invest your funds.
  • Flexibility: You can change your contribution amount at your discretion. Also, all funds remain in the account from year to year. There are no “use it or lose it” rules for HSAs.

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mycafeteriaplan bullet imageHow do I save money with an HSA?

HSA plans can save you money through three basic steps:

  1. Save money every month by purchasing more affordable insurance (called a high deductible health plan or HDHP).
  2. Set aside all or a portion of your premium savings into an HSA account.
  3. Use HSA account to pay out-of-pocket costs associated with an HDHP plan.

HSA Example: In both scenarios, the participant spends less on healthcare by selecting the HSA Plan

Current Plan  HSA Plan    
Insurance Premium $750/month or $9,000 annually $450/month or $5,400 annually
Deductible $250 $3,000
Co-Insurance 90% 90%
Max out-of-pocket $3,000 $3,000
   HSA Contribution $0 $250/month or $3,000 annually

 

                       Example 1: $35,000 in Medical Expenses   $35,000 in Medical Expenses   
Insurance Pays $32,000 $32,000
HSA Pays 0 $3,000
Patient Balance $3,000 $0
   Premiums $9,000 $5,400
HSA Contribution  $0  $3,000
Patient Balance  $3,000  $0
Total Annual Expenses $12,000 $8,400
SAVINGS OVER CURRENT PLAN  $0  $3,600
REMAINING HSA FUNDS  $0  $0

 

                       Example 2: $2,000 in Medical Expenses  $2,000 in Medical Expenses  
Insurance Pays $1,575 $0
HSA Pays $0 $2,000
Patient Balance $425 $0
   Premiums $9,000 $5,400
HSA Contribution  $0  $3,000
Patient Balance  $425  $0
Total Annual Expenses $9,425 $8,400
SAVINGS OVER CURRENT PLAN  $0  $1,025
REMAINING HSA FUNDS  $0  $1,000

 

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mycafeteriaplan bullet imageWhat is a High Deductible Health Plan (HDHP)?

A HDHP is a medical insurance plan that meets specific criteria set by the IRS. For 2016, a HDHP must meet the following standards:

HDHP Minimum Annual Deductible HDHP Out-of-Pocket Maximum HSA Maximum Contribution Limit HSA Catch-Up Contribution Limit
Self-only $1,300 $6,550 $3,350 $1,000
Family $2,600 $13,100 $6,750

If you are unsure if your plan meets the HDHP requirements, check with your insurance provider.

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mycafeteriaplan bullet imageHow much can I contribute to an HSA?

For 2016, you can contribute the following amounts:

  • $3,350 if you have self-only coverage
  • $6,750 if you have family coverage
  • For those 55 and older, an additional $1000 “catch-up” contribution is allowed.

If you join an HDHP mid-year, there are special rules about how much you can contribute. To avoid possible complications, we recommend pro-rating your HSA contribution to not exceed the following monthly amounts:

  • $279.16 (1/12 of $3,350) if you have self-only coverage
  • $562.50 (1/12 of $6,750) if you have family coverage

So if you join an HDHP on October 1st, your HSA contributions should not exceed:

  • $837.48 if you have self-only coverage
  • $1,687.50 if you have family coverage

You are allowed to contribute more than the pro-rated amounts, but there can be negative tax consequences if your HSA eligibility changes.

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mycafeteriaplan bullet imageAm I eligible for an HSA?

If you meet the following criteria, you are eligible to deposit money in an HSA:

  1. You are enrolled in a qualified high deductible health plan (HDHP).
  2. You cannot be claimed as anyone’s dependent.
  3.  You are not covered by any non-qualified plans.

These eligibility rules determine if you can add to your HSA account, not if you can spend your HSA money. This is a handy feature should your eligibility change in the future.

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mycafeteriaplan bullet imageWhat is a non-qualified plan?

A non-qualified plan is any medical plan that does not meet HDHP requirements. Coverage under any other medical plan (primary or secondary/dependent coverage) will make you ineligible for an HSA plan.

Three important details:

  1. Always check with your insurance provider to see if your plan is HSA compatible.
  2. Spouse coverage can affect your eligibility. If your spouse is enrolled in any medical plan, verify that you are not covered on their plan(s). Some plans cover spouses by default and could make you ineligible to contribute to an HSA plan.
  3. There are many commonly overlooked non-qualified plans. A few examples include:
  • Medicare
  • Medicaid
  • Tri-Care
  • VA Benefits*
  • Flexible Spending Accounts (FSA)
  • Health Reimbursement Arrangement (HRA)
  • Medical Reimbursement Plan (MRP)

*If you haven’t received Veteran’s benefits in the last three months, you can contribute to an HSA plan.

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mycafeteriaplan bullet imageWhat expenses are eligible?

Eligible medical expenses are defined by the IRS in Section 213(d) and are listed in IRS Pub 502. Most medical, dental, vision and over-the-counter expenses used to treat a medical condition are eligible. These expenses can be for you, your spouse or your dependents even if they are not covered on your HDHP.

A few examples are:

  • Copays
  • Deductibles
  • Co-insurance
  • Office Visits
  • Dental Cleanings
  • Glasses
  • Contacts
  • Aspirin

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mycafeteriaplan bullet imageWhat expenses are not eligible?

  • Health insurance premiums (other than COBRA and select Medicare plans)
  • Non-medical expenses
  • Cosmetic procedures (teeth whitening, cosmetic surgery, etc…)
  • Medicare supplement insurance premiums
  • Expenses reimbursed from any other source

All ineligible HSA distributions are taxable as income and subject to additional tax penalties so it is very important to know what is eligible.

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mycafeteriaplan bullet imageHow are contributions made to my HSA account?

Contributions can be made by you, your employer or both. However, the total contributions are limited annually. There are two ways you can contribute to your HSA account:

  1. Do the paperwork – send your contribution to the bank. You’ve paid taxes on this money already so you’ll have to deduct this amount when you file your taxes.
  2. Skip the paperwork – Avoid the taxes and have your employer deduct your contribution pre-tax from your paycheck. They will forward your contribution to the bank. Your contributions are tax-free so there’s no need to worry about deducting on your taxes.

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