Health Savings Account FAQ

Q. What is a Health Savings Account?
A. Health Savings Accounts (HSAs) are tax-exempt accounts where funds grow to pay for medical expenses. They were created to give control back to consumers and lower healthcare costs. HSAs provide a financial incentive for consumers to select a High Deductible Health Plan (HDHP).  HDHPs have lower monthly premiums than traditional plans. The HSA/ HDHP combination provides consumers with more incentive to shop carefully for healthcare services.

An HSA is your account.  If you switch jobs, the HSA goes with you.  Your money rolls over every year.  There is no “use it or lose it” requirement.  

Q. What is a High Deductible Health Plans (HDHP)?
A.
In order to open an HSA, you must have a qualified High Deductible Health Plan.  The IRS determines the guidelines for qualified HDHPs.  The current IRS guidelines are:

IRS Requirements for 2017 




Single Plan 

 Family Plan 

Minimum Deductible

$1,300

$2,600

Maximum Out-of-Pocket

$6,550

$13,100

Contribution Limit

$3,400

$6,750

Catch-Up Contribution (55 or older)*

$1,000

$1,000

You will need to contact your insurance carrier to verify your HDHP qualifies for an HSA.

Q. Who qualifies for a Health Savings Account (HSA)?
A.
You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. The minimum deductible to qualify is $1,300 for individuals and $2,600 for families. HDHPs usually cost less than traditional health care insurance, so the money that you save on insurance can be put into the Health Savings Account. What the HDHP actually covers can vary widely, so check with your employer about your plan coverage.

Any adult can contribute to a Health Savings Account if they:

  • Have coverage under an HSA-qualified “High Deductible Health Plan” (HDHP).
  • Have no other first-dollar medical coverage.
  • Are not enrolled in Medicare.
  • Cannot be claimed as a dependent on someone else’s tax return.

Q. How do I make HSA Contributions?
A.
When you have a qualifying High Deductible Health Plan, the following contribution guidelines apply:

  • Anyone can contribute to your HSA.
  • Your contributions are tax deductible.
  • If your employer contributes to your HSA, that contribution is done on a pre-tax basis.
  • Any payroll deductions made through Section 125 for your HSA are also on a pre-tax basis.
  • You may contribute the annual maximum amount as determined by the IRS, regardless of your plan’s deductible.
  • You may contribute the annual maximum amount determined by the IRS, regardless of when your coverage begins, if you maintain coverage for the 12-month period beyond the calendar year in which you first became eligible. The maximum for 2017 is $3,400 for individuals and $6,750 for families. (Example: if you have individual coverage that began in November 2016, you may still contribute $3,4000 for 2016 when you maintain coverage through the end of 2017.)
  • Your employer may roll over funds from your Health Reimbursement Arrangement or Flexible Savings Account once, according to the legislative provisions.

Q. How do HSA Distributions work?
A. Here are some key points about distributions:

  • You can use your money tax-free at any time for eligible medical expenses.
  • When you turn 65, or are enrolled in Medicare, and/or become disabled, you can use the money for non-eligible medical expenses.
  • The money is subject to income tax, and there are no IRS penalties.
  • If you are under age 65 and use your money for non-eligible medical expenses, you will be subject to income tax and a 20% tax penalty.
  • As of January 1, 2011, over-the-counter drugs will no longer be a considered "qualified medical expense".

Here Is a Table Comparing HSAs, HRAs and FSAs

Question 

Health Savings Account 

Health Reimbursement Account 

 Flexible Spending Account 

Do the funds belong to the employee?

 YES

 NO

YES

Can the money be invested and the employees earn interest?

 YES

NO

NO 

Can the employees use the funds for things other than medical expenses?

 YES

NO 

NO 

Can the employee take the money with them if they switch employers?

 YES

NO 

NO 

 Do the funds rollover year-to-year?

 YES

 Generally, NO

 NO

 Who can contribute to the account?

 Employers and/or individuals

 Employers

 Employee

HRAs are employer-owned.  FSAs have the “use it or lose it” clause (money has to be spent by the end of the year or it is forfeited to your employer).

Q. What Tax Advantages are there for Health Savings Accounts?
A. Federally Qualified HSAs are tax-deductible, tax-deferred and tax-free.

  • Tax-deductible: Contributions to your HSA can be deducted from your gross income.
  • Pre-tax: Contributions made to your HSA through payroll deductions.
  • Tax-deferred: Your HSA money grows without being taxed.
  • Tax-free: You can use your HSA money tax-free for eligible medical expenses.

Q. Are there exceptions for Health Savings Accounts?
A. If an individual does not stay in the HSA eligible plan 12 months following the last month of the year of the first year of eligibility, the amount which should not have been contributed will be included in income and subject to a 20% additional tax.

Example: You established a qualified health plan in December 2016 and contributed the maximum allowed.  Then in January 2017 you contributed the maximum contribution for that tax year.

Scenario 1:  You maintained coverage through December 31, 2016.  You are eligible for the maximum contribution for both 2016 and 2017.

Scenario 2:  You ended coverage April 1, 2017.  Eleven-twelfths of the December 2016 contribution must be treated as income, plus a 20% penalty on that amount must be paid.  Nine-twelfths of the funds deposited in January must be taken out of the account as an excess contribution (and treated as income) but no 20% penalty is incurred. 

Q. Are contributions prorated by the number of months the health plan is in place?
A.
Pro-rating of contributions occurs when the status of an HSA changes from family to single, or if the HSA qualified health plan is terminated.

For example:

Coverage Beginning Mid-Year - If you have a new HDHP and coverage begins in July of that year you will be eligible to contribute the maximum amount as determined by the IRS.

Health Plan Status Change - If you have family coverage beginning January 1, 2017 and switch to single coverage July 1, 2017, you will be eligible to contribute 6/12 of $6,750 plus 6/12 of $3,400.

HSA Qualified Health Plan Terminated - You have a qualified family health plan January 1, 2017 and terminate coverage April 1, 20174.  You are eligible to contribute 3/12 of $6,750.

Q. Can I roll over unused funds from an FSA or HRA?
A. Yes, regulations now allow you to roll over unused funds from an FSA or HRA on a one-time basis.  Please talk to your employer or third-party administrator for specific details. 

Q. Can I transfer funds from an IRA to my HSA?
A.
Yes, regulations allow a one-time rollover from an IRA to an HSA, up to the annual HSA contribution maximum.  Prior to transferring funds, please consult your tax advisor to discuss the benefits and tax reporting requirements.


Additional Resources

United Stated Department of Treasury
http://www.ustreas.gov/offices/public-affairs/hsa

Internal Revenue Service
http://www.irs.gov

Council for Affordable Health Insurance
http://www.cahi.org/index.asp

HSA Insider
http://www.hsainsider.com

The Galen Institute
http://www.galen.org

National Association of Alternative Benefits Consultants
http://www.naabc.com

Health Savings Account Office Web Portal
http://www.healthdecisions.org/hsa