What is a Health Savings Account?

A Health Savings Account (HSA) is an account that can be funded with your tax-exempt dollars, by your employer, or both, to help pay for eligible medical expenses not covered by an insurance plan, including the deductible, coinsurance, and even in some cases, health insurance premiums.  They are portable, which means that if you change plans or employers, your HSA will go with you.  There are contribution limits on HSAs.  For 2010, the limits are as follows:

Individual: $3,050

Family: $6,150

Catch up contribution (55-65-years-old)(individual and family): $1,000

Who is eligible for an HSA?

Anyone who is:

• Covered by a High Deductible Health Plan (HDHP)
• Not covered under another medical plan that is not a HDHP
• Not entitled to Medicare benefits
• Not eligible to be claimed on another person's tax return

What is a High Deductible Health Plan (HDHP)?

A High Deductible Health Plan is a plan with a minimum annual deductible and a maximum out-of-pocket limit as listed below.  These minimums and maximums are determined annually by the Internal Revenue Service (IRS) and are subject to change.  As of 2010, the minimum annual deductible is $1,200 for individual coverage or $2,400 for family coverage.  The maximum annual out-of-pocket is $5,950 for individual coverage and $11,900 for family coverage. These plans are generally very inexpensive relative to standard PPO plans.  In fact, some studies are citing 20-30% lower premium costs with HSAs than average health insurance premiums (AHIP HSAs and Account-Based Health Plans, June 2006).

How does an HSA work?

Part 1: Qualifying High Deductible Health Insurance Plan--> Intended to cover serious illness or injury after the deductible has been met.

Part 2: Health Savings Account--> Pays for out-of-pocket expenses incurred before the deductible is met.

What are the steps in an HSA?

1. Employee and/or employer funds HSA account.
2. Employee seeks medical services.
3. Medical services are paid by the HDHP, subject to deductible and coinsurance.
4. Employee may seek reimbursement from their HSA account for amounts paid toward deductible and coinsurance.
5. Deductible and out-of-pocket maximum are fulfilled.
6. Employee may be covered for all remaining eligible expenses*

Preventive care may be covered at 100%*

*Subject to plan design, check Summary Plan Description.

Embedded vs. Aggregate Deductibles

Aggregate Deductible

• Only applies to those who elect dependent coverage.
• Any one or more family members have to satisfy the full family deductible before receiving co-share benefits.

Embedded Deductible

• A separate individual (embedded) deductible amount for each family member of at least the minimum deductible amount for family coverage as governed by IRS guidelines.
• Must also have an overall "umbrella" (aggregate) deductible amount for the whole family.

Can I transfer funds from an IRA to my HSA?

Yes you can.  You have a one-time transfer opportunity up to the annual HSA contribution limit.