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Health Savings Accounts

A Health Savings Account (HSA) is an account that you can put money into to save for future medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment. HSAs were signed into law by President Bush on December 8, 2003.

Who can have an HSA?

Any adult can contribute to an HSA if they:

  1. Have coverage under an HSA qualified "high deductible health plan" (HDHP)
  2. Have no other first-dollar medical coverage
  3. Are not enrolled in Medicare
  4. Cannot be claimed as a dependent on someone else's tax return

Contributions to your HSA can be made by you, your employer, or both. However, the total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return. Contributions to the account must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it to pay for medical expenses tax-free.

High Deductible Health Plans

You must have coverage under an HSA-qualified "high deductible health plan" (HDHP) to open and contribute to an HSA. Generally, this is health insurance that doesn't cover first dollar medical expenses. Federal law requires the health insurance deductible be at least:

$1,100 - Self only coverage
$2,200 - Family coverage

In addition, annual out-of-pocket expenses under the plan (including deductibles, co-pays and co-insurances) cannot exceed:

$5,600 - Self only coverage
$11,200 -Family coverage

In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for "preventive care" services on a first-dollar basis (with or without a co-pay). "Preventive care" can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, pap smears, etc.

HSA Contributions

You can make a contribution to your HSA each year that you are eligible:

$2,900 - Self only coverage
$5,800 - Family coverage

Catch-Up Contributions

Individuals age 55 and older can also make additional "catch-up" contributions. The maximum annual catch-up contribution is as follows:

Year 2008 - $900
Year 2009 and after - $1,000

Determining Your Contribution

Your eligibility to contribute to an HSA for each month is generally determined by the effective date of your HDHP coverage. If you do not have HDHP coverage for the entire year, you will not be able to make the maximum contribution. All contributions (including catch-up contributions) must be pro-rated. Your annual contribution depends on the number of months of HDHP coverage you have during the year (count only the months where you have HDHP coverage on the first day of the month).

Contributions can be made as late as April 15 of the following year.

Using Your HSA

You can use the money in the account to pay for "qualified medical expenses" permitted under federal tax law. This includes most medical care and services, and dental and vision care, and also includes over-the-counter (OTC) drugs such as aspirin.

You generally can not use the money to pay for medical insurance premiums, for any of the following:

  • Any health plan coverage while receiving federal or state unemployment benefits
  • Cobra continuation coverage after leaving employment with a company that offers health insurance coverage
  • Qualified long-term care insurance
  • Medicare premiums and out-of-pocket, including deductibles, co-pays and co-insurance for:
    • Part A (hospital and inpatient services)
    • Part B (physician and outpatient services)
    • Part C (Medicare HMO and PPO plans)
    • Park D (prescription drugs)

You can use the money in the account to pay for medical expenses of yourself, your spouse, or your dependent children. You can pay for expenses of your spouse and dependent children even if they are not covered by your HDHP.

Any amounts used for purposes other then to pay for "qualified medical expenses" are taxable as income and subject to an additional 10% tax penalty. Examples Include:

  • Medical expenses that are not considered "qualified medical expenses" under federal tax law (i.e., cosmetic surgery)
  • Other types of health insurance unless specifically described above
  • Medicare supplement insurance premiums
  • Expenses that are not medical or health related

After you turn age 65, or become disabled, the 10% additional tax penalty no longer applies.

What happens to my HSA when I Die?

If you are married, your spouse becomes the owner of the account and can use it as if it were their own HSA. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).

Opening Your Health Savings Account (HSA)

Banks, credit unions, insurance companies, and other financial institutions are permitted to be trustees or custodians of these accounts. Other financial institutions that handle IRAs or Archer MSAs are also automatically qualified to establish HSAs. If you cannot locate a local institution willing to establish your account, check links under "Resources" on the Treasury website.  https://www.treasury.gov/resource-center and https://search.treasury.gov/search (search for: institutions for HSA accounts)

The following lists provide a brief summary of the information described in the Internal Revenue Code and IRS publication. The lists are intended to serve as a quick reference to help determine whether or not an expense may be eligible for HSA reimbursement. This information is provided with the understanding that the Tomei Insurance Agency is not providing tax advice. Tax advice should be obtained from a professional tax advisor.

Listed below are qualified medical expenses eligible for reimbursement:

 Acupuncture       Gynecologist       Premiums (for long-term care  
 Alcoholism Treatment
 Ambulance
     Healing Services
 Hearing Aid & Batteries
        insurance)
 Premiums (for continuation coverage
 Anesthetists
 Artificial Limbs
     Hospital Bills
 Hydro Therapy
        required by Federal Law (COBRA))
 Premiums (for insurance received while 
 Autoette (when used for relief
    of sickness & disability)
     Insulin Treatments
 Lab Test
        receiving unemployment compensation)
 Prenatal Care
 Birth Control Pills (by prescription)
 Blood Tests
     Lead Paint Removal
 Legal Fees (to authorize treatment
     Prescription Medicines
 Psychiatrist
 Braces
 Cardiographs
       for a mental illness) 
 Lodging (away from home for
     Psychoanalyst
 Psychologist
 Chiropractor        outpatient care)      Psychotherapy
 Christian Science Practitioner      Metabolism Tests      Radium Therapy
 Contact Lenses      Neurologist      Registered Nurse
 Contraceptive Devices
 Convalescent Home (for Medical
     Nursing (including board and meals)  
 Obstetrician       
     Special School Costs (for the handicapped/
    challenged)
    treatment only)
 Crutches
 Dental Treatment
     Operating Room Costs
 Ophthalmologist 
 Optician 
     Spinal Fluid Test
 Splints
 Sterilization
 Dental X-Rays      Oral Surgery       Surgeon
 Dentures
 Dermatologist
     Organ Transplant (including
    donor's expenses)
     Telephone or TV Equipment (to assist
    the hearing impaired) 
 Diagnostic Fees      Orthopedic Shoes      Therapy Equipment
 Diathermy
 Drug Addiction Therapy
     Osteopath   
 Over the Counter Medication (OTC)
     Transportation Expenses (relative to
    health care) 
 Drugs (prescriptions)         Oxygen & Oxygen Equipment      Ultra-Violet Ray Treatment
 Eyeglasses
 FICA & FUTA (tax paid for
     Pediatrician
 Physician
     Vaccines
 Vaccines
    medical care service)      Physiotherapist      Vasectomy
 Fluoridation Unit      Postnatal Treatments      Vitamins (if prescribed)
 Guide Dog
     Practical Nurse (for Medical
   services)
     Wheelchair
 X-Rays

Expenses not eligible for reimbursement:

 Advance Payment (for services to
   be rendered next year)
     Cremation or Burial Expenses
 Diaper Service
     Maternity Clothes
 Premiums for Life Insurance
 Athletic Club Membership      Disability      Sight or Similar Benefits
 Autoette or Special Equipment      Domestic Help       Scientology Counseling
 Automobile Insurance Premium
   (allocable to medical coverage)
     Funeral 
 Health Programs (offered by a resort)
     Social Activities
 Special Foods or Beverages
 Boarding School Fees      Hotel Health Clubs & Gyms      Swimming Pool
 Bottled Water      Hygiene Products & Similar Items      Travel for General Health Improvement
 Commuting Expenses (of a
   disabled person)
     Illegal Operations & Treatments
 Illegally Procured Drugs
     Tuition & Travel Expenses (for sending
    a problem child to a particular school)
 Cosmetic Surgery & Procedures      Income Protection      Weight Loss Programs
 Cosmetics      Loss of Limb(s)      
   
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