To get the benefits of an HSA, the law requires that the savings account be combined with High Deductible Health Insurance. High Deductible Health Insurance costs less than traditional low deductible coverage, because the insurance company does not have to process and pay claims for routine, low-dollar medical care.

For 2010, a High Deductible Insurance Plan is a health plan with a minimum deductible of $1,200 for self-only coverage and $2,400 for family coverage.  The maximum out-of-pocket expenses for allowed costs must be no more than $5,950 for self-only coverage and no more than $11,900 for family.

You obtain coverage under a qualified health insurance plan with a minimum deductible of $1,200 for singles and $2,400 for families.  You are then allowed to deposit up to $3,050 for singles or $6,150 for families into your Health Savings Account for 2010.  Older Americans can save even more.  You do not have to itemize your deductions on your federal income taxes to deduct your contributions to an HSA.  You can use the savings account to pay for your lower-dollar medical expenses, or those that are not covered by the health plan.  Once you meet the deductible, the health insurance covers your medical expenses as defined in the policy.

Because HSA-qualified health plans all have high deductibles, they typically have much lower premiums than traditional health insurance plans.  The plans are individually priced based on age, residence, health history, build, date of enrollment, type of plan, deductible, PPO network options selected, billing method and other services.  Our instant quote system will quickly provide you rates on the plans available in your area. 

When you apply for HSA-qualified plan, an underwriter will review your application to determine your eligibility.  If you have pre-existing health concerns, it may take longer for the insurance carrier to issue a policy.  If you are concerned about having to submit your initial payment with your application and then having to wait for an answer, Time Insurance and a couple other companies allow you to submit your application C.O.D., meaning that you can receive an approval before making your first monthly payment.  You can also speak to an advisor at 800-260-9051, who can conduct a pre-screen with the insurance company before submitting the application to get an initial opinion from the underwriting department.

Underwriting guidelines for HSA-qualified plans are normally similar to the company’s underwriting guidelines for any of the other policies they may offer.

There are two options...

If you use an in-network provider, they can file your claim for you.  This is the smart way to work things, as it will ensure that you receive the company's discounted PPO price, instead of having to pay the full price.

Or, you could simply save the bills and submit them to the company yourself, either all at once, or after you have reached a certain limit in bills.

To establish a health savings account, you must own an HSA-qualified high deductible health insurance plan.  First, review all the information on the HSA Info page and look over the remainder of this Q & A section to familiarize yourself with HSAs. 

Many provisions of the health care reform law are increasing costs to insurance companies, thus leading to even higher insurance rates.  Thus, we are seeing more people than ever who are switching to an HSA-qualified plan, which not only provides lower premiums but also significant tax advantages.  The new law does increase the penalty for non-medical fund withdrawal from your HSA, and makes over-the-counter medicines no longer an eligible expense which can be paid from your HSA. 

Only certain plans are eligible to be used in conjunction with Health Savings Accounts.  For 2010, a high deductible insurance plan is a health plan with a minimum deductible of $1,200 for self-only coverage and $2,400 for family coverage.  The maximum out-of-pocket expenses for allowed costs must be no more than $5,950 for self-only coverage and no more than $11,900 for family coverage.  Other restrictions apply, including reporting requirements established by the IRS.

The health insurance company or plan administrator will provide a written statement verifying this status.  The words "Qualifying High Deductible Health Plan" or a reference to IRC Section 223 will be included in the declaration page of the policy or another official communication from the insurance company.  If this documentation is not available, it is NOT a qualifying plan.

The plan must meet the deductible and other design requirements that are adjusted each year and the health insurance company must agree to report the list of qualifying policyholders to the IRS.  The Treasury will review and qualify health plans at the request of the sponsoring organization.  Not all high-deductible health insurance plans are HSA-qualified even if they meet deductible and out-of-pocket requirements.

In large part because the health insurance company must agree to report the list of qualifying policyholders to the IRS.  Health insurance companies must also be willing to meet both the federal requirements as well as the state insurance requirements. Some sticking points are "per person deductibles" and "mandated coverage" that may be required under state insurance laws but are disallowed under the federal HSA laws.  This may involve considerable expense that insurance companies are not willing to assume at this time.

Most qualifying high-deductible health plans are PPO plans, though there are some indemnity plans that do not have a PPO network.  If you have a PPO plan, any visits to a doctor in your PPO network will be re-priced according to the discount negotiated by the PPO, before you are billed.  Having access to a PPO network can mean substantial discounts in what you pay for your health care, even before you meet your deductible. 

You can only contribute to your HSA only when you have an HSA-qualified plan.  If you are also covered by a spouse’s non-HSA plan, then you would no longer qualify to contribute to your HSA.  However, you can still use the money in it to pay for qualified medical expenses, or you can let it continue to grow on a tax-deferred basis.

Annual contributions for 2010 are capped at either the high deductible of $3,050 for an individual and $6,150 for a family.

  Contributions may be made by anyone on behalf of the account beneficiary.

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The maximum contribution limit is $3,050 for individuals and $6,150 for families, regardless of your deductible or when you get your plan in place.  However, If you do not keep your coverage for at least 12 months, the contribution limit will be pro-rated, based on the total number of months in which your HSA-eligible health insurance was in effect.  For example, if your coverage begins on March 1st and is in effect only through December, you will only be allowed to deposit 10/12 of the annual contribution limit.

To be eligible to contribute, the individual:

• Must be covered by a qualifying High Deductible Health Plan (HDHP)
  
• Cannot be on Medicare
  
• Cannot be covered by other health insurance that is not an HDHP (excluding accident plans or dental plans)
  
• Cannot be eligible to be claimed as a dependent on another person's tax return

Yes, as long as the contribution is made into an account of an eligible individual.

Individuals can contribute their entire contribution at the beginning of the year, up to the applicable contribution limit.  They might, however, have to make a corrective distribution later in the year if the individual's eligibility status changes during the year (for instance, if they become covered under another non-qualifying plan, or if their HDHP coverage ends).

• If your spouse has non-qualifying family coverage that includes you, it makes you an “ineligible individual”, and you may not contribute to an HSA.
  
  
• If your spouse has an individual HSA-qualifying plan, then you would have to subtract your spouses contribution from the maximum that you could otherwise contribute.
  

Neither the Treasury nor the IRS has indicated that there is any problem with an account owner covering a domestic partner under an HDHP and having the domestic partner's expenses count toward satisfying the family deductible under the HDHP, notwithstanding that these individuals are not related.  However, most individual insurance plans will not cover domestic partners, so the two individuals would probably need to get individual policies.

Unlike a spouse, you may not take a tax-free distribution from your HSA to pay for your domestic partner's expenses, unless your domestic partner is considered to be a dependent under Code section 152.

Investment options vary by administrator, and include savings accounts, stocks, bonds, and mutual funds.

No, you may change administrators at any time, although some administrators may charge a fee to open or close your account.

Yes.  The IRS places few limitations on the type of investments allowable for HSAs.  Contrary to what most bankers and brokers will tell you, investment vehicles available to you for your HSA funds do include real estate, private notes and mortgages, limited partnerships, and many other possibilities.  Investments NOT permitted include life insurance contracts, collectibles including art, antiques, metals, gems, stamps, alcoholic beverages or other tangible property as specified in section 408(m) of the Tax Code.

Making your deposit as early in the year as possible will also help maximize the tax-deferred growth of your funds.

You can use HSA Bank's HSA Future Value Calculator to estimate the growth of your HSA.

The funds belong to you.  Funds can be withdrawn for any purpose, at any time.  However, if funds are withdrawn for reasons other than to pay for qualified medical expenses by someone under age 65, the amount withdrawn is taxable and subject to a 10% penalty by the IRS.  After age 65, there is no penalty for non-qualified withdrawals but amounts are taxable.

Funds used to pay for the following are tax-free and penalty-free:

• Qualified medical expenses as defined under Section 213 of the IRS Code (See IRS Publication 502: Medical and Dental Expenses).  This is the same code section that governs MSAs.
  
• COBRA insurance
• Qualified long-term care insurance and expenses
  
• Health insurance premiums for individuals receiving unemployment compensation
  
• Medicare and retiree health insurance premiums, but not Medicare Supplement premium

Funds may be used for eligible expenses for your spouse or dependents, even if they are not covered by the HDHP.

No.  You cannot reimburse qualified medical expenses incurred before your account is established.  We recommend you establish your account as soon as possible once you obtain qualifying health insurance coverage.

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.

In January you should receive form 1099-SA, which will indicate the total distributions you took from your account during the previous year, and form 1099-INT or other similar form indicating your earnings on the account during the year.  Distributions are not taxed if you spent the money on qualified medical expenses.  Growth on the account is not taxed unless there is distribution of this money for non-qualified purposes.

In May you should receive form 5498, which will indicate your total contributions to the account during the previous year.  This form is not sent out until May because you have until April 15 to fund your account from the previous year.

Your HSA will be treated as your surviving spouse’s HSA, but only if your spouse is the named beneficiary.  If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary.

If you become permanently disabled, you may withdraw your funds at any time, without penalty.  Withdrawals will be subject to income tax at that time.

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage.  The funds in your account roll over automatically each year and remain indefinitely until used.  There is no time limit on using the funds.

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or if you have COBRA continuation coverage through a former employer.