The concept of Health Savings Accounts combines an affordable qualified High Deductible Health Plan (HDHP) and a tax-favored Health Savings Account (HSA). The combination results in savings through lower health care premiums and a reduction in taxable income. The HSA grows tax-deferred, and if you use your HSA funds for eligible medical expenses, you never have to pay taxes on those funds!
With HSAs, you control your health care decisions!
What are Health Savings Accounts (HSAs)?
Health Savings Accounts are tax-exempt accounts with a financial institution in which you accumulate savings to pay for medical expenses. Contributions and income earned on funds in the accounts are 100% TAX FREE. The account allows you to enjoy tax reductions while having affordable premiums and decreasing your out-of-pocket expenses without risking your insurance protection.
||Individual (or on behalf of the individual) and/or employer |
||Up to 100% of deductible with a maximum cap determined by the IRS each year. Proposed amounts for 2010:|
$3,050 for single coverage
$6,150 for family coverage
Min.=$1,200 for single*
Min.=$2,400 for family*
|Maximum Out-of-Pocket ( in network)
(Includes deductible and any expenses incurred once deductible is met.)
Max.= $5,950 for single
Max.= $11,900 for family
|Who is Eligible?
||Individual must be covered under a qualified high deductible health plan, below Medicare eligibility age, and not covered under any other health plan. |
|Is there a "catch-up" contribution provision for older workers?
||Individuals age 55-65 may contribute more to the account per year. Starting in 2009 and thereafer, an additional $1000 contribution per year is allowed. |
Permanent Legislation effective January, 1, 2004
|Do employers need to make comparable contributions? (in a group plans)
||Yes, however, under HSA legislation both employers and employees can contribute.|
Health Savings Accounts Benefits
1. Contributions are 100% tax deductible.
2. Interest or other earnings on the assets are tax free, money grows tax deferred.
3. Money saved can be used for qualified medical expenses (for a list of the qualified expenses go to page 4 of the (IRS Publication 502) tax free for life.
4. MSA/HSA funds can also be used to pay COBRA or other medical insurance premiums during periods of unemployment or temporary layoff.
5. Contributions remain in your MSA until you use them. At age 65, unused MSA/HSA money can be withdrawn for non-medical reasons without penalty (similar to an IRA, ordinary income tax will be charged on the money withdrawn for non-medical reasons)
Eligible Medical Expenses
Medical care expense is defined as amounts paid for the diagnosis, cure, treatmnent or prevention of disease, and for treatments affecting any part function of the body. Medical expenses must be primarily to alleviate or prevent a physical or mental defect or illness.
An eligible expense is defined as those expenses paid for care as described in Section 213 (d) of the Internal Revenue Code. Additionally, the IRS has allowed non-prescription drugs as described in Rev. Rul. 2003-102, 2003-38 I.R.B.559. Below are two lists which may help determine whether an expense is eligible.
Below are examples of both qualified and non-qualified medical expenses. They are provided to serve as a quick reference and are provided to you with the understanding that FinallAffordableHealthCare.com is not engaged in rendering tax advice. For more detailed information, please refer to IRS Publication 969 titled, Health Savings Acoounts and Other Tax-favored Health Plans and IRS Publication 502 titled, Medical and Dental Expenses, Catalog Number 15002Q. Publications can be ordered directly from the IRS by calling 1-800-TAX FORM. The publication is also available at the IRS web site, www.irs.gov . You can also download HSA Basics (tri-fold brochure) -- for use in 2007 (changes for 2008 are listed above) from the IRS.
Other valuable information may be accessed at the Department of Treasury Health Savings Account (HSAs) website. Available at this website are topics relevant to HSAs, which include: IRS forms and publications, Technical Guidance, HSA Statute, All About HSAs, Fact Sheets, Tax Savings From HSA Contributions in 2007, Frequently Asked Questions and various other topics of relevant interest.
The information provided here is not legal or tax advise. If legal or tax advice is required, you should seek the services of a competent professional.
Qualified Medical Expenses (for HSA distributions)
Air conditioner (when necessary
for relief from difficulty in
Autoette (when used for relief of
Birth Control Pills
Christian Science Practitioner
(for medical treatment only)
Drug addiction therapy
Elastic hosiery (prescription)
Fees paid to health institute
prescribed by a doctor
FICA and FUTA tax paid for
medical care service
Hearing aids and batteries
Lead paint removal
Lodging (away from home for
Nursing (including board and
Operating room costs
Organ transplant (including
Oxygen and oxygen
Practical nurse for medical
Special school costs for the
Spinal fluid test
Telephone or TV equipment to
assist the hard-of-hearing
(relative to health care)
Ultra-violet ray treatment
Vitamins (if prescribed)
Eligible Over-the-Counter Drugs (for HSA distributions)
Cough drops and throat lozenges
Sinus Medications and Nasal sprays
Nicotine medications and nasal sprays
First aid creams
Wart removal medication
Suppositories & creams for hemorrhoids
Motion sickness pills
Ineligible Medical Expenses
Advancement payment for services to be rendered next year
Athletic Club membership
Automobile insurance premium allocable to medical
Boarding school fees
Commuting expenses of a disabled person
Cosmetic surgery and procedures
Cosmetics, hygiene products and similar items
Funeral, cremation, or burial expenses
Health programs offered by resort hotels, health clubs, and
Illegal operations and treatments
Illegally procured drugs
Premiums for life insurance, income protection, disability,
loss of limbs, sight or similar benefits
Special foods and beverages
Specially designed car for the handcapped other than an
autoette or special equipment
Travel for general health improvement
Tuition and travel expenses a problem child to a particular
Weight loss programs
Ineligible Over-the-Counter Drugs
Toiletries (including toothpaste)
Lip balm (including Chapstick or Carmex)
Cosmetics (including face cream and moisturizer)
Medicated shampoos and soaps
Weight loss drugs for general well being
Health insurance may not be purchased with HSA Funds. There are three (3) situations which are exceptions whereby HSA funds can be used to pay for:
1) A health plan during any period of continuation coverage required under any Federal law
2) A qualified long-term care insurance contract
3) A health plan during a period in which the individual is receiving unemployment compensation under any Federal or State Law.
4) For individual over age 65, premiums for Medicare Part A or B, a Medicare HMO and /or the employee share of premiums for the employer-sponsored health, including premiums for employer=sponsored retiree health insurance.
Tax Considerations Recap
Health Savings Accounts create unique tax benefits for accountholders/individuals.
- Contributions are 100% tax-deductible
- Funds grow on a tax-deferred basis, and if the funds are used for an eligible medical expense, the funds are tax-free
- Funds roll over from year to year, and funds used after age 65 are able to be used tax-free for eligible medical expenses or at your normal tax rate for any other reason
Over the life of your Health Savings Account, you could save thousands of dollars in taxes.
Example: If you had a deductible of $3,000, contributed your maximum amount ($3,000) each year, estimate you will use $500 each year on medical expenses, fell in the 28% tax bracket, have a state sales tax of 5%, you were 40 years old, planned to contribute to your HSA until you were 65 years old and anticipated a three percent average interest rate, you could expect a tax savings of $9,453.89.
Federally qualified Health Savings Accounts are tax-deductible, tax-deferred and tax-free.
Tax-deductible - Contributions to your HSA are able to be deducted from your gross income.
Tax-deferred - HSA funds grow without being subject to taxes until they are used for non-eligible medical expenses.
Tax-free - The funds in an HSA are completely tax-free when used for eligible medical expenses.
Take 7 minutes and listen to this presentation on the financial risks and the importance understanding the exposure of Individual Health Insurance verses Group Health Insurance in wealth preservation and retirement planning.
Interested in a quote for a tax-favored HSA qualified High Deductible Health Plan (HDHP): click here
The Tax Relief and Health Care Act of 2006 that was signed into law on December 20, 2006 makes it easier to build HSA funds. For complete information on all the HSA changes for 2008, go to the U.S. Treasury website. click here
HSA Application and Eligibilty Form
Checklist Custodial Agreement
and Beneficiary Form
HSABank Online Enrollment
This list contains examples and is not intended to be all inclusive. FinallyAffordableHealthCare and its affiliates are not engaged in rendering tax or legal advice. If tax or legal adviceis needed, consult your tax or legal advisor. FinallyAffordableHealthCare markerts insurance product underwritten and issued by major health insurance carriers listed on this site.
Member of NAHU (National Association of Health Underwriters)
Insurance coverage from names you know and trust:
Anthem Blue Cross Blue Shield Aetna Life Insurance Company Assurant Health
Golden Rule/UnitedHealthcare Humana Insurance Company
World Insurance Company TIME Insurance Company
UNICARE Life and Health Insurance Company