HSA Frequently Asked Questions

• 2004 - $500
• 2005 - $600
• 2006 - $700
• 2007 - $800
• 2008 - $900
• 2009 and after - $1,000

• The majority of HSA purchasers (52 percent) were 40 years of age or older.
• Nearly half of HSA purchasers (49 percent) were families with children.
• Two-fifths of HSA purchasers (41 percent) had incomes of $50,000 or less.
• Three of ten HSA purchasers (30 percent) had previously been uninsured.

Remember HSAs are two parts: an insurance policy and a tax-free account. So, if you take $3,000.00 of that $9,068.00 (leaving $6,068.00 unspent) and you or your employer purchase a health insurance policy that covers your medical expenses above $5,1,50.00, the high deductible health insurance plan is in place.

Now, according to the law, you are allowed to deposit – tax free – up to $5,150.00 to pay for the routine medical care. Withdrawals for medical care are tax-free. Your insurance company may administer the account or you can open the account with an HSA administrator like FirstMSA (www.firstmsa.com) or MSABank (www.msabank.com) or Prime Healthcare (www.webhealthsavingsaccount.com) or a local bank that offers Health Savings Accounts.

To review, out of the $9,068.00, you spent $3,000.00 on a health insurance policy with a $5,150.00 deductible. The insurance covers your family’s health care costs that exceed the $5,150.00 deductible.

Out of the $6,068.00 remaining, you and your employer deposit $5,150.00 into your health savings account. It is now your money. If you leave your employer, it is still your money. It follows you. What you do not spend out of the account rolls over, so if you and your family only have health costs of $2,000.00 this year, you and your family would have $3,150.00 remaining in your Health Savings Account. So, next year, you will start your Health Savings Account with $3,150.00, plus the interest you earned, and you and your employer will add another $5,150.00 to your account, giving you ($5,150.00 + $3,150.00 = $8,300.00) to spend next year.

So, you and your employer just saved $918.00 in health care costs in the example above.

Insider: If you or your employer are tired of sending hundreds and hundreds of dollars each month to your health insurance company, and would prefer to keep a big chunk of that money for yourself to spend on health expenses or save it for the future, then you need to look into a Health Savings Account.

Insider: If you are unemployed or laid off and are collecting unemployment insurance, then you can use funds from your Health Savings Account to pay for your health insurance premium and for your routine health expenses -- all tax-free.

Another advantage is that you can spend tax-free money out of your Health Savings Account for long term care insurance.

Insider: Do I have a HSA Qualified health insurance policy?

The quickest way to find out if your health insurance plan is HSA qualified, is to ask your health insurance company. If they say ‘yes,’ then you know your health plan qualifies you to open an HSA.

Or, if your insurer offers both the insurance and the HSA account for the health insurance policy you have, then the policy is clearly HSA qualified.

For those whose employer provides your health insurance, ask your employer. If they do not know, they should ask the insurer on behalf of the employees.

Some visitors to our web site (and members of the HSA Coalition) have reported – essentially – that their insurer will not tell them if their policy is HSA qualified or not.

In that case, I recommend voting with your check book, and get a new insurance policy with a company that will tell whether their insurance policy is HSA qualified. In all seriousness, find a new insurer.

If, for whatever reason, you do not want to leave your insurer, here some general guidelines in the form of several questions you need to answer, to find out if your health insurance plan is an HSA qualified plan:

For family health insurance plans:

Is the annual deductible between $2,000 and $10,000? If the answer is yes, you are OK, so far. If the answer is no (either the deductible is less than $2,000 or more than $10,000) then you do not have an HSA qualified plan.

Does your family insurance plan have a comprehensive deductible? For example, if one person spends $1,000, and the other $800, and a third person has expenses of $1,200, each expenditure counts toward the $3,000 deductible, and your deductible is met when all expenditures exceed the deductible? If you answered yes, then your plan qualifies.

If, on the other hand, your family plan has a deductible that fits in the HSA compatible deductible range, but allows for individual family members to be covered by the insurance if their expenditures reach a certain dollar amount below the overall deductible, then no, your plan does not qualify. For example, if your family deductible is $3,000, but if a family member incurs expenses that exceed $1,500 then that family member’s future expenses are covered by the health insurance, then no, you do not have a HSA qualified plan.

You could have another kind of plan where the deductible for the entire family is $4,000, but the insurance starts to pay benefits for each family member at $2,250. This meets the minimum family deductible (of $2,000) for an HSA qualified deductible. So this plan qualifies.

Does your maximum out-of-pocket amount per year for your family plan exceed $10,000? If yes, you do not have a HSA qualified health insurance plan.

For health insurance plans for singles:

Is your annual deductible at least $1,000 or not more than $5,000? If yes, then you are OK so far, in terms of having a HSA qualified plan.

Does your maximum out-of-pocket expenditure for your single insurance plan exceed $5,000? If so, it does not qualify as a HSA qualified health insurance plan.

For both family and single health insurance plans:

Do you pay co-pays before you reach the deductible? If yes, then you do not have a HSA qualified plan, unless the co-pay is for prescription drugs. In that case, your health insurance will qualify for an HSA until 1/1/2006 because the U.S. Treasury has issued special transition rules for such plans. However, if you pay co-pays for prescription drugs, or are otherwise insured below your deductible for prescription drugs, the drug coverage you have must be a separate plan or a rider to your plan. You can go to the U.S. Treasury section of this web site (button on the left side of the Home Page) to read the Media Release about this transition rule, or the actual HSA transition rule issued by Treasury.

If your plan meets all the requirements listed above, it is an HSA compatible plan.

Remember, the maximum HSA deposit for a family cannot exceed the deductible, or in the case of a deductible higher than $5,150, the HSA deposit cannot exceed $5,150 in 2004.

For single individuals, your maximum HSA deposit can not exceed your deductible, and in cases of a deductible higher than $2,600, your HSA deposit cannot exceed $2,600 in 2004.

Insider: Some insurers will offer you the insurance policy and the Health Savings Account, so you will not have to open a separate account. Other insurers offer just the insurance policy, and you will have to find a bank or other trustee to open your Health Savings Account. The two largest Health Savings Account trustees are MSABank and FirstMSA, and are located on the web at www.msabank.com and www.firstmsa.com.

You can get a comprehensive list of trustees who can open a Health Savings Account for you by going to the box on our home page titled: "Who Can Open My Health Savings Account?" and you will see a list of trustees, their fees and interest rates, as well as a link to their web site and other contact information.

Insider: There are two key reasons the less healthy should choose an Health Savings Account.

The first reason is to have control over their own health care decisions and treatments, including their prescription drugs.

With an HMO, the sick must face the rationing regime in place by HMOs to contain costs, which includes a frustrating waiting list to see a specialist and treatment and prescription drug formularies that may not have the most up-to-date treatments or brand name drugs that would make them feel the best.

The second reason is a financial incentive.

Assuming the less healthy would rather not be in an HMO or other managed care plan, then they would likely choose a fee-for-service plan. The standard fee-for-service plan has a $500 deductible, with a 20% co-pay of the next $5,000. This means the person would pay $500 for the deductible, and $1,000 for 20% of $5,000, before being covered 100%.

That is $1,500 in after-tax income to be insured 100% for someone who is less healthy in a traditional, low deductible, fee-for-service health insurance plan.

With a Health Savings Account, the same individual would pay a much smaller premium, and in most cases, the savings fund a majority of the deductible in their Health Savings Account.

With a $1,700 deductible, and, say $1,500 deposited tax-free in the Health Savings Account, the less healthy individual with an HSA would have to come up with $200 in after tax money to be covered 100%. ($1,700 deductible minus $1,500 from the Health Savings Account equals $200 to meet the deductible).

So the choice for a less healthy individual in a fee for service plan is: (1) pay $1,500 in after-tax funds to pay to be covered 100% by their insurance, or (2) with an HSA, pay $200 in after tax money to be covered 100%.

The less healthy, therefore, have a financial incentive to choose a Health Savings Account.

Insider: Yes, there is list of allowable expenses published by the U.S. Treasury Department, actually the Internal Revenue Service, referred generally as the ‘213 (d)’ list, since it appears in IRS regulation 213 (d). Here is a link to the list of allowable/not allowable expenditures: http://www.irs.gov/pub/irs-pdf/p502.pdf.
In general, you can spend tax-free from your Health Savings Account on all medical, dental (including braces for your children), and vision expenses, chiropractic visits, and even acupuncture, but not on your insurance premium, unless you are unemployed and are collecting Federal unemployment benefits.

Insider: 

Insider: Yes.

Insider: The U.S. Department of the Treasury has recently stated that those with a health insurance plan that is in all other respects HSA compatible, except that it provides prescription drug coverage below the deductible, can have an HSA until 1/1/2006. This is how the U.S. Department of Treasury’s media release described this recent Treasury ruling:

http://www.hsainsider.com/treasury/treasury_7.pdf

INTERACTION OF HDHP BENEFITS WITH PRESCRIPTION BENEFITS AND TRANSITIONAL RELIEF Prior guidance noted that an eligible individual must be covered by an HDHP and generally no other health plan that is not an HDHP. Guidance issued today clarifies that individuals covered by a health plan that provides prescription drug benefits before the minimum annual deductible of an HDHP has been satisfied may not make contributions to an HSA. However, companion guidance also issued provides transition relief to those individuals covered by both an HDHP and by a separate health plan or rider that provides prescription drug benefits before the deductible of the HDHP is satisfied. Under the relief, such individuals continue to be eligible to contribute to HSAs before 2006.

If you want to read the full text of the Ruling, go to:

http://www.hsainsider.com/treasury/treasury_3.pdf

Insider: Yes.

Insider: The law became effective January 1, 2004, and was signed into law by the President in early December, 2003.

Insider: Here is the U.S. Department of Treasury's answer, which can be found at: http://www.treas.gov/offices/public-affairs/hsa/faq2.html#hsa3

Who is eligible for a Health Savings Account?

To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance (does not apply to specific injury insurance and accident, disability, dental care, vision care, long-term care), is not eligible for Medicare, and can’t be claimed as a dependent on someone else’s tax return.

What Is a “High Deductible Health Plan” (HDHP)?

A HDHP is a health insurance plan with minimum deductible of $1,000 (self-only coverage) or $2,000 (family coverage). The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,000 (self-only coverage) or $10,000 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and higher out-of-pocket (copays & coinsurance) for non-network services.

Insider: HSAs did not exist last year. The law authorizing them was signed by President Bush in early December (and was part of the Medicare Rx bill) and the HSA section became effective on 1/1/04. You would have to have had a Medical Savings Account last year to get a tax benefit for 2003.

Insider: The U.S. Department of the Treasury has recently stated that those with a health insurance plan that is in all other respects HSA compatible, except that it provides prescription drug coverage below the deductible, then until 1/1/2006, such persons can have an HSA. This is how the U.S. Department of Treasury’s media release described this recent Treasury ruling:

http://www.hsainsider.com/treasury/treasury_7.pdf

INTERACTION OF HDHP BENEFITS WITH PRESCRIPTION BENEFITS AND
TRANSITIONAL RELIEF Prior guidance noted that an eligible individual must be covered by an HDHP and generally no other health plan that is not an HDHP. Guidance issued today clarifies that individuals covered by a health plan that provides prescription drug benefits before the minimum annual deductible of an HDHP has been satisfied may not make contributions to an HSA. However, companion guidance also issued provides transition relief to those individuals covered by both an HDHP and by a separate health plan or rider that provides prescription drug benefits before the deductible of the HDHP is satisfied. Under the relief, such individuals continue to be eligible to contribute to HSAs before 2006.

If you want to read the full text of the Ruling, go to:

http://www.hsainsider.com/treasury/treasury_3.pdf

Insider: Yes, provided, of course you have HSA qualified insurance, and the maximum deductible amount is pro-rated based on the first full month your high deductible health plan was in place.

To answer the question "What happens if on day two of having an HSA, am hospitalized, and do not have enough money built up in the account?" some insurers are selling a hospitalization rider (with a one time fee) that allows individuals or employees to be paid the amount they would have deposited into the HSA over the course of more than a year, if they are hospitalized in the initial months of having an HSA.

The way that one insurer's rider works is that if in the third month of the HSA being in force the HSA policy holder is hospitalized for three days, the insurance company sends the insured a check for the deductible minus an assumed amount of three months deposit into the HSA account. (The rider does not assume the maximum allowable amount is deposited each month.)

So, in the case of this insurer, with this type of rider, the HSA insured uses this money paid to them to meet their deductible expenses, and their high deductible health insurance covers their other hospitalization costs, once their deductible is met.

Insider: Your insurer is the best one to answer that question, but assuming your health plan qualifies (and the deductible does qualify) then yes, you can just combine it with an HSA you open somewhere else. The only time you can pay your premium out of your HSA is when you are unemployed and are collecting unemployment. Please see the question (and answer) for "Do I have an HSA qualified health plan?" in this section (Question number 5 in the HSA Basics section) above.

Insider: The HSA eligibility criteria is simply that the health plan that the employee or the individual has conforms to the HSA qualified health insurance criteria. There are no income limits (we fought hard for that). To find out if your plan meets the criteria, go to the HSA Basics section (see button on the left hand side of the home page) and look under the question "Do I have an HSA qualified health plan?"