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Health Savings Accounts

Frequently Asked Questions: Health Savings Accounts

What are Health Savings Accounts (HSAs)?
How do HSAs differ from Medical Savings Accounts (MSAs)?
Is an HSA account set up for the same date as the HDHP (high deductible health plan)?
Can claims be paid from an HSA account that has not been funded?
Who qualifies for HSAs?
Are there limits on deductibles and contributions?
Who qualifies for "catch-up" contributions?
Is the deductible calculated differently for HSA plans?
How are Preventive Benefits covered?
Who owns the money in an HSA account?
What should I alert the employer of?
Where can I learn more?

1. What are Health Savings Accounts (HSAs)?
HSAs were established as part of the Medicare Prescription Drug Improvement and Modernization Act of 2003, Title XII. These tax-advantaged savings accounts can be used to pay for qualifying medical expenses, and may be offered under a cafeteria plan.

2. How do HSAs differ from Medical Savings Accounts (MSAs)?
Only small businesses and those who are self-employed qualify for an MSA. HSAs are open to everyone with a high deductible health insurance plan; for 2007 and 2008, this means those with a minimum deductible of $1,100 for self-only and $2,200 for family.

3. Is an HSA account set up for the same date as the HDHP (high deductible health plan)?
There is normally a 30+-day delay from the effective date of the health plan and HSA set-up.

4. Can claims be paid from an HSA account that has not been funded?
Until further guidance is made available, an HSA account should be funded to be considered established. Therefore, claims incurred between the effective date of the health plan and the funding of the HSA cannot be paid with HSA funds.

5. Who qualifies for HSAs?
Those who have a high deductible plan with no other health coverage except Workers' Compensation, specific disease or illness insurance, accident coverage, dental care, vision care, and/or long-term care qualify for an HSA. An enrollee cannot be eligible for Medicare or claimed as a dependent.

6. Are there limits on deductibles and contributions?
Employer contributions are not considered taxable income for the individual. Contributions made by an eligible individual are tax deductible. Contributions by family members of an eligible individual are deductible by the eligible individual.

For 2007, the minimum deductible is $1,100 for self-only and $2,200 for family. The maximum deductible and contribution is $2,850 for self-only coverage and $5,650 for family. The maximum out of pocket is $5,500 for self-only and $11,000 for family. For 2008, the maximum contribution is $2,900 for self-only and $5,800 for family. The maximum out of pocket is $5,600 for self-only and $11,200 for family.

New in 2007: Maximum contributions are allowed regardless of the annual deductible of the HDHP; anyone eligible to contribute during the last month of the year is considered eligible for the entire year. However, the person must remain eligible for the following 12 months. A one-time transfer of a residual balance from an HRA or FSA is allowed until 12/31/11. The requirement that disallowed higher contribution for non-highly compensated has been eliminated.

7. Who qualifies for "catch-up" contributions?
Individuals 55 and older qualify for “catch-up” contributions. For 2007, they may increase their contribution by $800; in 2008 by $900; and in 2009 and after by $1,000.

8. Is the deductible calculated differently for HSA plans?
Yes. No one in the family begins benefits until the entire family deductible has been satisfied.
A carrier may establish the minimum family deductible as their individual deductible.

9. How are Preventive Benefits covered?
An item or service or prescription drug that satisfies the criteria for Preventive Care may be covered under an HDHP, even if the individual has not satisfied the minimum deductible. Medications may be deemed preventive when taken to prevent a condition by an individual who has developed risk factors which have not yet manifested or to prevent recurrence of a disease.

10. Who owns the money in an HSA account?
Any money deposited into an HSA belongs to the employee.

11. What should I alert the employer of?
Employee contributions can be pre-tax as long as the employer is offering a cafeteria plan. The deductible is "aggregate": until the full family deductible is satisfied, no one in the family begins benefits. (Some carriers filed with the N.J. Department of Banking & Insurance for different calculations.) Incurred claims can only be paid with funded accounts. The IRS inflation adjusts the deductible, contribution, and maximum out-of-pocket amounts annually. Preventive care and medication can be covered first dollar.

12. Where can I learn more?
E-mail the U.S. Treasury at hsainfo@do.treas.gov or call 202-622-4HSA (4472).