HSA Questions & Answers

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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.

For 2008, a High Deductible Insurance Plan is a health plan with a minimum deductible of $1,100 for self-only coverage and $2,200 for family coverage.  The maximum out-of-pocket expenses for allowed costs must be no more than $5,600 for self-only coverage and no more than $11,200 for family.

You obtain coverage under a qualified health insurance plan with a minimum deductible of $1,100 for singles and $2,200 for families.  Each year you’re allowed to save 100 percent of the health plan’s annual deductible, up to $2,900 for singles and $5,800 for families in 2008.  Older Americans can save even more.  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.

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 866-749-2045 or email us for a complete list of prices on all the available HSA-qualified health insurance plans in your area. 

When you apply for HSA-qualified plan, an underwriter will review your application to determine your eligibility.  If you have pre-existing health concerns, it may take longer for the insurance carrier to issue a policy.  If you are concerned about having to submit your initial payment with your application and then having to wait for an answer, Fortis is one company that allows you to submit your application C.O.D., meaning that you can receive an approval before making your first monthly payment.

Underwriting guidelines for HSA-qualified plans are normally similar to the company’s underwriting guidelines for any of the other policies they may offer.

Only certain plans are eligible to be used in conjunction with Health Savings Accounts.  For 2008, a high deductible insurance plan is a health plan with a minimum deductible of $1,100 for self-only coverage and $2,200 for family coverage.  The maximum out-of-pocket expenses for allowed costs must be no more than $5,600 for self-only coverage and no more than $11,200 for family coverage.  Other restrictions apply, including reporting requirements established by the IRS.

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.

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.

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.

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.

Annual contributions for 2008 are capped at $2,900 for individuals and $5,800 for families.

• 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) for those who turn
  age 55 before the end of the tax year.  The additional contribution amount is $900 for 2008
  and increases annually to an additional $1,000 in 2009.  If you turn 55 during the year, the
  extra deposit allowed is prorated, based upon your birthday.  A month is “counted” if your are
  55 or older on the first day of that month.

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

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The maximum contribution limit is determined monthly.  Since the HSA account can begin the 1st of the month after the medical plan starts, your maximum contribution is based on the number of complete months the HSA account is open.  For example, if your HSA account begins in March and is open through December, you will be allowed to deposit 10/12 of the annual contribution limit.

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

Yes, as long as the contribution is made into an account of an eligible individual.

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).

An extensive list of qualified HSA administrators and trustees is posted on the HSA for America's HSA Administrators page.  Investment options vary by administrator, and include savings accounts, stocks, bonds, and mutual funds.

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

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.

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).

The funds belong to you.  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% 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.

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.

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.

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.