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Health Savings Accounts

Summary

Health Savings Accounts were created to help individuals save for qualified medical and retirement expenses on a tax-free basis.

Eligibility

Individuals under the age of 65 are eligible to contribute to an HSA if they have a qualified high-deductible health plan (QHDHP).

  • For self-only policies, a qualified health plan must have a minimum deductible of $1,250 with a $6,250 cap on out-of-pocket expenses (indexed annually).
  • For family policies, a qualified health plan must have a minimum deductible of $2,500 with a $12,500 cap on out-of-pocket expenses (indexed annually).

Preventive care services in the health plan are not subject to the deductible.

In addition to the deductible and maximum out of pocket, further prerequisites may exist that define a plan as a Qualified HDHP and therefore eligible for HSA contributions. Please consult with your insurance broker to verify eligibility.

Contributions

The maximum annual contribution for individuals is $3,250 and $6,450 for family policies (indexed annually).

  • Individuals age 55-64 may make additional "catch-up" contributions of up to $1,000 for 2013. A married couple can make two catch-up contributions as long as both spouses are at least 55 and have separate HSA accounts. Catch-up contributions will help individuals accumulate assets for retirement health expenses.
  • Contributions may be made by individuals, family members and employers.

Contributions are tax-deductible. Employer contributions are made on a pre-tax basis and are not taxable to the employee. Employers will be allowed to offer HSAs through a cafeteria plan.

Investment earnings accumulate tax-free.

Note: Persons covered by Medicare are not eligible to contribute to an HSA.

Distributions

HSA distributions are tax-free if they are used to pay for qualified medical expenses, such as:

  • Amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease
  • Prescription drugs
  • Qualified long-term care services and long-term care insurance
  • Continuation coverage required by Federal law (i.e., COBRA)
  • Health insurance premiums for the unemployed
  • Medicare expenses (but not Medigap)

Retiree health expenses for individuals age 65 and older (Note: retiree health plans would not have to meet the $1,250/$2,500 minimum deductible requirements.)

Distributions made for any other purpose are subject to income tax and a 20% penalty. The 20% penalty is waived in the case of death or disability. The 20% penalty is also waived for distributions made to individuals age 65 and older.

Treatment Upon Death

Upon death, HSA ownership may transfer to the spouse on a tax-free basis.