Health Savings Accounts
A health savings account (HSA) is an economical way to secure more affordable health insurance while you save on
federal taxes. They are high deductible plans that offer flexibility, affordability, and ease of use. A portion of your
premium will be set aside in a tax-free savings account that can be used to meet your deductible, co-pays, and out-
of-pocket expenses. It is your money, in your account, to use for any medical expenses including over-the-counter
medications, bandages, eye care, dental care, etc.
Participating in an HSA
To participate in a Health Savings Account (HSA), you must be enrolled in a High-Deductible Health Plan (HDHP). A
HDHP is a comprehensive health plan with an annual deductible for an individual of at least $1,050, and a $2,100
deductible for two or more family members. The maximum annual out-of-pocket for in-network expenses for an
individual cannot exceed $5,250, or $10,500 for two or more family members.
To participate in an HSA, you cannot be covered by any additional low-deductible plan that provides coverage for
any benefit that is covered by the HDHP. Duplicate coverage cannot exist.
Two other requirements that must be met in order to participate in a Health Savings Account (HAS) are:
You cannot
• Be a dependent on another person’s tax return
• Be enrolled in Medicare
Contributing to Your HSA
Participants in a Health Savings Account (HSA) set aside money to pay for eligible out-of-pocket expenses in the
HSA. This money can be contributed to your HSA up to the amount of the deductible to a maximum limit which
changes from year to year.
Contribution maximums are also based on monthly limits. For example, if you enroll in an HDHP on September 1 and
your deductible is $1,200, you can only contribute $400 (4/12 of $1,200). If you are age 55 or older, you may be
able to make additional contributions. The additional amount increases by $100 each year until it reaches $1,000 in
2009. The additional contribution limit is also calculated on a monthly basis like the annual contribution limit. Once
the insured has enrolled in Medicare, the HSA cannot receive any contributions.
Contributions to your HSA are tax-deductible at the federal level or tax-deferred if made by your employer.
Withdrawals will not be taxed if they are used to pay for qualified medical expenses. State taxes vary from state to
state so please consult your tax advisor.
Contributions made by your employer to your HSA are yours to keep. There are no forfeiture provisions or vesting
requirements. Also, unlike flexible spending accounts (FSAs), there is no "use it or lose it"
requirement. Your account balance rolls over from year to year, and may even earn interest that could be tax-free at
both the federal and state level.
Investment Options for Your Health Savings Account (HSA)
You have the opportunity to grow your HSA by investing it in a choice of six Wells Fargo investment funds. You can
choose from a conservative money market fund to a more aggressive stock fund. To learn more about the available
fund consult your enrollment materials for a brief overview of each. You choose the funds that best match your risk
tolerance.
Using Your HSA
To You will be provide with an HSA Visa® debit card that you can use to pay for covered medical expenses. You
simply present the card to your medical provider or pharmacy, and money will be deducted directly from your HSA.
You may also submit claims via mail, or fax to receive reimbursement, usually within 4 business days.
If you use your HSA money for any other reason than for qualified medical expenses, you will be required to pay
income tax and a 10% tax penalty on that amount (you will not pay a penalty if you are disabled or age 65 or older).
You are required to keep the supporting records to show the Internal Revenue Service that you used the funds to
pay for qualified medical expenses.
FAQ
Q: What is the difference between an HDHP and an HSA?
A: Health insurance companies provide HDHPs (High Deductible Health Plans). HSAs (Health Savings Accounts) are
offered through financial institutions.
Individuals who are enrolled in an HSA-eligible HDHP may be eligible to open an HSA. You will need to consult with
a financial advisor to determine if you meet HSA-eligibility criteria and whether or not an HSA is the right thing for
you financially.
Q: Can I use the money in my HSA to pay medical insurance premiums?
A: The money in your HSA could not normally be used to pay premiums for health insurance. There are, however,
some exceptions. These exceptions include long-term care premiums, COBRA premiums, or premiums payments
that allow you to keep health coverage enforce while you are receiving unemployment compensation.
Q: What expenses can I use my HSA for?
A: Covered medical expenses are defined in IRS code 213(d) and are listed in IRS publication 502. They include
services that would normally be covered by a healthcare plan, such as doctor office visits, emergency room
services, and hospitalization. They also include vision expenses such as eye exams, eyeglasses and contact
lenses. Prescription drugs and many over-the-counter drugs are also considered qualified expenses. Health
insurance deductibles and co-pays, as well as non-cosmetic dental expenses are also covered.
Q: What do I do if I find out something isn’t a qualified expense after I already used my HSA to pay for it?
A: When you file your state and federal taxes, you will need to include that amount in your gross income. It will be
treated as normal income. If you are less than age 65, it will also be subject to a 10%
excise tax.