Message from Wiley Long
President - ColoHealth
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HSA Questions & Answers

The Basics - Qualifying Plans - HSA Contributions - HSA Investments - HSA Distributions

 

The Basics:

  - What is a Health Savings Account?
  - Why High Deductible Health Insurance?
  - How does a Health Savings Account work?
  - How much does HSA-qualified health insurance cost?
  - I have some medical history.  How do I know if I will qualify for a high deductible HSA ins plan?

 

Qualifying Plans:

  - What is a "Qualifying High Deductible Health Plan"?
  - How do I know if my health plan is a "Qualifying High Deductible Health Plan"?
  - What makes a health insurance plan HSA-qualified?
  - Why are all health insurance policies that meet the stated requirements for High Deductible Health     Plans not considered HSA-qualified?
  - With a high-deductible health plan, will I have to pay full price for doctor visits, or will I receive a     PPO discount?

 

HSA Contributions:

  - How much can be contributed to an HSA in 2016?
  - How is the contribution limit determined?
  - What are the eligibility requirements for contributing to an HSA account?
  - Can another person who is over 65 contribute to the HSA of an individual under 65?
  - Can individuals make their entire contribution to the HSA at the beginning of the year?
  - 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?
  - Does my HSA need to be set up with my Health Insurance Company?
  - 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 Investments:

  - Where can I invest my money?
  - Are there any limitations on changing your HSA account from the initial administrator chosen, to     another, in order to take advantage of additional investment options or lower fees?
  - Are other investment options allowed, such as real estate, limited liability companies, or gold     bullion?
  - How can I maximize my tax-free savings and investment return?

 

HSA Distributions:

  - For what purpose can HSA funds be used?
  - What tax return information will I get from my HSA administrator?
  - Does the HSA Administrator "approve" medical expenses, or keep track of them?
  - What happens at age 65?
  - What happens to my HSA if I die?
  - What happens if I become disabled?


The Basics:

- What is a Health Savings Account?
-

An 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.

 
- 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.

A high-deductible health plan (HDHP) 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 $3,400* for singles or $6,750* for families into your HSA for 2017. For 2019, contribution limit for singles will be $3,450 and $6,900 for families. Older Americans can save even more, with the option to deposit an additional $1,000 per year. You 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?
-


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. An instant quote on rates is available online for many of the HSA-qualified health insurance plans. Please call our office at 800-913-6381 or email us for a complete list of prices on all the available HSA-qualified health insurance plans in your area. 

- I have some medical history. How do I know if I will qualify for a high deductible HSA Insurance plan?
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Regardless of pre-existing conditions, all health insurance plans are now guaranteed-issue as mandated by the Affordable Care Act. This means, even if you have some medical history, the insurance company cannot deny you health insurance coverage.


Qualifying Plans:

- What is a "Qualifying High Deductible Health Plan"?
-


Only certain plans are eligible to be used in conjunction with Health Savings Accounts. 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 expense for allowed costs is $6,650 for self-only coverage and $13,300 for family coverage in 2019. 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 price for doctor 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.


HSA Contributions:

- How much can be contributed to an HSA?
-


Annual contributions are capped at $3,450 for an individual and $6,900 for a family. Individuals over 55 may contribute an additional $1,000 per year. In 2019, there will be a $50 increase for individual contributions while family contribution limits will increase by $150. Individuals over 55 may contribute an additional $1,000 per year.

  • 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) of $1,000 for those who turn age 55 before the end of the tax year. If you turn 55 during the year, the extra deposit allowed is prorated, based upon your birthday. A month is “counted” if you are 55 or older on the first day of that month.

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

- How is the contribution limit determined?
-


The contribution limit is determined by the IRS and is based on the Consumer Price Index, regardless of your deductible or when you get your plan in place. However, If you do not keep your coverage for at least 12 months, the contribution limit will be pro-rated, based on the total number of months in which your HSA-eligible health insurance was in effect. For example, if your coverage begins on March 1st and is in effect only through December, you will only be allowed to deposit 10/12 of the annual contribution limit.

- What are the eligibility requirements 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 entitled to Medicare (generally age 65)
  • 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 the HSA of an individual under 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?
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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.


HSA Investments:

- Where can I invest my money?
-


Investment options vary by administrator, and include savings accounts, stocks, bonds, and mutual funds.

- Are there any limitations on changing your HSA account from the initial administrator chosen, to another, in order to take advantage of additional investment options or lower fees?
-


No, you may change administrators at any time, although some administrators may charge a fee to open or close your account.

- Are other investment options allowed, such as real estate, limited liability companies, or gold bullion?
-


Yes.  The IRS places few limitations on the type of investments allowable for HSAs. Contrary to what most bankers and brokers will tell you, investment vehicles available to you for your HSA funds do include real estate, private notes and mortgages, limited partnerships, and many other possibilities.

- How can I maximize my tax-free savings and investment return?
-


Paying for your medical expenses as they occur and reimbursing yourself in later years allows the HSA time to grow tax-deferred. You must retain records of medical expenses not reimbursed so they can be reimbursed in subsequent years, but by using this strategy your account can grow significantly higher over time.

Maximum contributions are also limited by your deductible and the month in which your Health Savings Account is established, so it is prudent to set up your account as soon as you have applied for a qualified High Deductible Health insurance Plan (HDHP).


HSA Distributions:

- For what purpose can HSA funds be used?
-


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 10 percent 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.

See Qualified Expenses for a more complete list.

- 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.

In May you should receive form 5498, which will indicate your total contributions to the account during the previous year.  This form is not sent out until May because you have until April 15 to fund your account from the previous 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.

- What happens at age 65?
-


When you turn 65 you are no longer eligible for coverage under a high-deductible health plan. You may still use HSA funds to pay qualified medical expenses, exempt from income taxes. 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 ½.

- What happens to my HSA if I die?
-


Your HSA will be treated as your surviving souse’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.

Feel free to Contact Us if you have any further questions.