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Brought to you by Insurance Center of New England, Inc. |
Health Savings Accounts 101
Part 1: What Are They and Who Can Have Them?
December, 2009 - Part 1 | |
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| Coming Soon |
Part 2: Contributions to a Health Savings Account
Part 3: Distributions and Tax Filing
If you have any questions on health savings accounts, please contact Judy Davis at 750-7133.
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Insurance Center of New England's Beyond Benefits is providing this reference as general information only. It is not intended to be legal advice. | |
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 As many employers continue to look for ways to reduce their health care expenses, the trend toward offering qualified High-Deductible Health Plans (also known as Consumer Directed Health Plans, CDHP's) has been on the rise. Studies have shown participation in a HDHP is greater when employers couple the HDHP with a Health Savings Account.
Some employers may be considering adding a Health Savings Account to their existing Section 125 Cafeteria Plan, but feel overwhelmed with the eligibility requirements, IRS rules and contribution limits and tax filing procedures for account holders.
With this in mind, Beyond Benefits has put together a comprehensive Q&A on Health Savings Accounts that will be distributed as 3 a part series.
Part One: Health Savings Accounts-What Are They & Who Can Have Them?
Part Two: Contributions to a Health Savings Account
Part Three: Distributions and Tax Filing of Health Savings Accounts.
We hope these serve as a handy reference for you.
Can't wait for the next edition of Beyond Benefits to find out more? Go to our website, icnegroup.com and see all 3 editions. |
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| 1. What is an HSA and how does it work? |
 An HSA is a tax-advantaged account established to pay for qualified medical expenses for those who are covered under a qualified high deductible health plan. With money from this account, you pay for health care expenses until your deductible is met. Then, in accordance with the terms of your health care plan, your insurance company pays for covered expenses in excess of your deductible. Any unused funds are yours to retain in your HSA and accumulate toward your future health care expenses or your retirement. |
| 2. Who qualifies for an HSA? |
An eligible individual is anyone who:
- is covered under a qualified high deductible health plan (HDHP)
- is not covered by any other health plan that is not an HDHP
- is not currently enrolled in Medicare or TRICARE
- has not received medical benefits through the Department of Veterans Affairs (VA) during the preceding three months
- may not be claimed as a dependent on another person's tax return
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| 3. Who qualifies as a dependent? |
 A person generally qualifies as your dependent for HSA purposes if you claim them as an exemption on your federal tax return.
Please see IRS Publication 502 for exceptions www.irs.gov/pub/irs-pdf/p502.pdf. |
| 4. What is a "high deductible health plan" (HDHP)? |
 A HDHP is a health plan that satisfies certain requirements with respect to deductibles and out-of-pocket expenses. In 2010, for self-only coverage, a HDHP has an annual deductible of at least $1,200 and annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) not exceeding $5,950 (as indexed). For family coverage in 2010, an HDHP has an annual deductible of at least $2,400 and annual out-of-pocket expenses not exceeding $11,900. HDHP qualifying deductibles and annual out-of-pocket-expenses are indexed for inflation on an annual basis. Visit www.treas.gov and click on "Health Savings Accounts" for updates.
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| 5. What kind of other health coverage makes an individual ineligible for an HSA? |
Generally, an individual is ineligible for an HSA if the individual, while covered under a HDHP, is also covered under a health plan (whether as an individual, spouse, or dependent) that is not a HDHP. |
| 6. What other kinds of health coverage may an individual maintain without losing eligibility for an HSA? |
An individual does not fail to be eligible for an HSA merely because, in addition to a HDHP, the individual has coverage for any benefit provided by "permitted insurance." Permitted insurance is insurance under which substantially all of the coverage provided relates to liabilities incurred under workers' compensation laws, tort liabilities, liabilities relating to ownership or use of property (e.g., automobile insurance), insurance for a specified disease or illness, and insurance that pays a fixed amount per day (or other period) of hospitalization.
In addition to permitted insurance, an individual does not fail to be eligible for an HSA merely because, in addition to a HDHP, the individual has coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care. |
| 7. What can I use the HSA for? |
The HSA can be used:
- to pay for qualified medical, dental, vision and certain over-the-counter and prescription drug expenses as defined in IRS Publication 502
- as supplemental income, but money withdrawn is taxable and if you are under age 65, it will be subject to a 10% penalty.
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| 8. What if I use my HSA to pay for something other than a qualified medical expense? |
If you are under age 65, it will be subject to applicable income taxes and a 10% penalty. |
| 9. Are health insurance premiums qualified medical expenses? |
Generally, health insurance premiums are not qualified medical expenses. Exceptions include qualified long-term care insurance, COBRA health care continuation coverage, any health plan maintained while receiving unemployment compensation under federal or state law, and for those age 65 or over (whether or not they are entitled to Medicare), any employer-sponsored retiree medical coverage premiums for Medicare Part A or B, or Medicare HMO. Conversely, premiums for Medigap policies are not qualified medical expenses. | |
 Insurance Center of New England, Inc. is a regional independent insurance agency providing full-service commercial and personal insurance protection and group employee benefits programs. Based in West Springfield, MA as Insurance Center of New England, Inc. and in Gardner, MA as Heritage Insurance Agency, we have satellite locations in Chicopee, Chelmsford, Danvers, Fitchburg, Lowell, Orange and Winchendon. |
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