Health Savings Accounts – HSAs

Fast Facts About Health Savings Accounts (HSA)

  • HSAs are similar to Medical Savings Accounts (MSA). However, MSAs have always been restricted to employees of small businesses and the self-employed. HSAs are open to just about anyone with a High-Deductible Health Plan (at least $1,200 for individuals and $2,400 for families).
  • HSAs are portable and move with you if you change employment.
  • HSA contributions can come from you, your employer, or both - all in the same tax year.
  • Contributions by an individual are tax deductible.
  • Employer contributions are not included in the individual's taxable income.
  • Unused contributions roll over from year to year and interest continues to grow on a tax-deferred basis.
  • HSA funds can be used to cover health insurance deductibles and any co-payments for qualified medical services.
  • "Catch-Up" Contributions - Individuals age 55 or older may contribute an extra $1000 per year to an HSA in 2010.
  • HSA funds can be used to purchase over-the-counter drugs and to pay health insurance premiums during any period of unemployment.
  • HSAs may be offered under an employer's cafeteria plan, allowing employees to contribute to an HSA with pre-tax salary reductions.
  • Any interest earned by the account is not taxable while in the HSA. Withdrawals for qualified medical expenses are not taxable.
  • Funds can be used for non-qualified purposes but are subject to taxes and a 10% penalty.
  • Once you reach age 65, you can withdraw the money for non-medical reasons without the 10% penalty.

Why Choose an HSA?

  • You can save as much as 50% on your insurance premiums.
  • 100% of your HSA contributions are deducted from your pre-tax income.
  • The interest earned by the money in your HSA is also tax-free.
  • You pay no taxes or penalties when you use your HSA for qualified medical expenses.
An HSA allows you to purchase a high-deductible insurance plan with lower-premiums, making it an excellent way to save money on healthcare. And because your contributions to the fund are tax-free, you can enjoy considerable tax savings. Plus, the interest is tax-free and tax-deferred, so you can use Health Savings Accounts to supplement your retirement income as well.

Top 10 Reasons to a Have a Health Savings Account

  1. Tax Savings - You can deduct your HSA deductions from your gross income on your federal tax return, even if you do not itemize deductions. Many states also allow the deduction from state income taxes.
  2. Earned Interest - Funds in your HSA grow with tax-deferred interest.
  3. Portability - You own your account, so even if you change jobs, your HSA funds go with you.
  4. Affordable Health Coverage - Use your Health Savings Account to cover 100% of the cost of routine medical expenses like office visits, lab tests, and over-the-counter drugs.
  5. Reduced Insurance Premiums - Your insurance premiums can be substantially lower when you change from a low-deductible plan to a high-deductible plan.
  6. Long-Term Savings - Because your funds can roll over from year to year, you can let the funds in your account grow tax-deferred. That's why HSAs have been referred to as the "Medical IRA."
  7. Retirement Bonus - After age 65, you may make withdrawals from your HSA for any reason without the 10% penalty imposed before age 65 for non-medical withdrawals. (Note: you'll still have to pay taxes on the money).
  8. Safety Net - There is no "use it or lose it" provision, so you can build up the savings in your HSA to use for major health events.
  9. Coverage for the "Extras" - You can also use your HSA funds for programs not usually covered by other health plans, including dental, optical, and much more.
  10. Empowerment - Take control of your routine healthcare decisions - you get to choose the healthcare and providers that you want.

HSAs vs. Other Plans

Click here to view a comparison chart of HSA, MSA, HRA, and FSA.

HSA vs. MSA

In many ways, Health Savings Accounts resemble the Archer Medical Savings Accounts that have been around since 1997.
  • The account is specifically earmarked to pay for qualified medical expenses.
  • The individual owns the money in the account.
  • The previous year's contributions roll over into the next year.
  • The account is portable from one employer to another but that is where the similarities end.
Unlike an MSA:
  • For 2010, an HSA allows for a deductible as low as $1,200 for individual coverage and $2,400 for family coverage.
  • HSAs are not limited to the self-employed or businesses with 50 or fewer employees.
  • Anyone under the age of 65 with an eligible HDHP is eligible for an HSA. "Catch-Up" Contributions - Individuals age 55 or older may contribute an extra $1000 per year to an HSA.
  • HSAs allow employees to contribute 100% of their deductible, eliminating post-tax expense.
  • Both the employer and the employee can contribute to an HSA.
This new twist to the employee benefit arena creates exciting new possibilities when used in conjunction with the current Flexible Spending Accounts, Health Reimbursement Arrangements, and other employer sponsored reimbursement plans.

Click here to view a comparison chart of HSA, MSA, HRA, and FSA.

Portability

Forget About "Use It Or Lose It"...
HSAs Are "Use It Or Keep It!"

One of the strategic benefits of a Health Savings Account is that you own the account. The money is yours to keep, even if you don't use it all by the end of the year. And if you change jobs or health insurance coverage, the money goes with you.

You no longer have to worry about using all your funds for fear of losing them.
The "portability" of HSA accounts is a vast improvement over the rules that govern Health Reimbursement Arrangements (HRAs) and Cafeteria Section 125 Flexible Spending Accounts (FSAs), where any unused funds revert back to the employer at the end of the year or upon termination. HSA portability affords you more flexibility when it comes to your healthcare expenditures.

You can take your money with you if you leave your company.
If you remain covered under a High-Deductible Health Plan (HDHP), you can continue to access your HSA funds through individual coverage or you can "roll over" funds from one employer's HSA program to another employer's program (or from an Archer MSA to an HSA). Even if your new employer doesn't offer an HSA-compatible HDHP, you can keep the money in your HSA and continue to use the funds for qualified expenses. However, you can no longer add money to the account until you are again covered by an HDHP.

You can use your HSA like an IRA.
Withdrawals for qualified medical expenses can always be made tax-free (there's a 10% penalty, plus taxes, for non-medical expenditures). But if you don't use all the money by the end of the year, your money stays in your account until you need it. One financial benefit is that any leftover HSA funds earn interest tax-deferred… all the way into retirement. Then at age 65, you can make withdrawals from your HSA for any reason without penalty.