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HSAs

Health Savings Accounts (HSAs) were created as part of Public Law 108-173, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003". Any adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. Tax-advantaged contributions can be made in three ways:

• The individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions;

• The individual’s employer can make contributions that are not taxed to either the employer or the employee; and,

• Employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.

To encourage saving for health expenses after retirement, individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA.

Amounts contributed to an HSA belong to the account holder and are completely portable. Funds in the account can grow tax-free through investment earnings, just like an IRA.

Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year, unused funds remain available for use in later years

HDHP

A High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA) provides traditional medical coverage and a tax free way to help you build savings for future medical expenses. The HDHP/HSA or HRA gives you greater flexibility and discretion over how you use your health care benefits.

When you enroll in an HDHP, the health plan determines if you are eligible for a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). If you are Medicare enrolled, you are not eligible for an HSA. Each month, the plan automatically credits a portion of the health plan premium into your HSA or HRA, based on your eligibility as of the first day of the month. You can pay your deductible with funds from your HSA or HRA. If you have an HSA, you can also choose to pay your deductible out-of-pocket, allowing your savings account to grow.

HELPFUL LINKS

All About Health Savings Accounts (HSAs) - US Department of the Treasury information site.

HDHP and HSAs - Detailed site for High Deductible Health Plans (HDHP) with Health Savings Accounts (HSA) from the Federal Office of Personnel Management

HELPFUL DOWNLOADS

All About HSAs - Fact filled presentation from US Department of Treasure(44 slides)

Dramatic Growth in HSAs - US Department of the Treasury Fact Sheet on HSAs