(HSA) Health Savings Account
Questions and Answers

insurance 
Robert Nelson
Agency
724-266-0301

321 Merchant Street
Ambridge, PA 15003

724 - 266-0301 Phone
724 - 266-8677 Fax

General information about HSAs
Health Savings Accounts (HSAs) were signed by the President on December 8, 2003. Assurant Health, a national leader in Medical Savings Accounts (MSAs), has fully supported HSAs and was at the forefront of the legislation. HSAs are a significant expansion of the current MSAs.

What is a Health Savings Account?
An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account may be opened to cover current and future medical expenses. The money deposited, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.

Who can qualify?
Anyone with a qualified high deductible insurance plan will be eligible for a tax-deductible HSA.

Who can contribute to an HSA?
Individuals, employers and their employees. There are no restrictions.

How much can be contributed to the HSA?

Contribution and Out-of-Pocket Limits for Health Savings Accounts and for High-Deductible Health Plans

 

For 2014

For 2013

 


HSA contribution limit (employer + employee)


Individual:
$3,300

Family:
$6,550


Individual:
$3,250

Family:
$6,450


Individual:
+$50 

Family:
+100


HSA catch-up contributions (age 55 or older)*


$1,000


$1,000


No change**


HDHP minimum deductibles


Individual:
$1,250

Family:
$2,500


Individual:
$1,250

Family:
$2,500


No change


HDHP maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums)


Individual:
$6,350

Family:
$12,700


Individual:
$6,250

Family:
$12,500


Individual:
+$100

Family:
+$200


Catch-up contributions can be made any time during the year in which the HSA participant turns 55.

** Unlike other limits, the HSA catch-up contribution amount is not indexed; any increase would require statutory change.


The increases in contribution limits and out-of-pocket maximums from 2013 to 2014 were somewhat lower than the increases a year earlier, reflecting the government's calculation of a more modest inflation rate. From 2012 to 2013 the contribution limit rose $150 for individual coverage and $200 for family plans, while maximum out-of-pocket amounts rose $200 for individuals and $400 for families, and HDHP minimum deductible amounts rose $50 for individuals and $100 for families.

Penalties for Nonqualified Expenses

Those under age 65 (unless totally and permanently disabled) who use HSA funds for nonqualified medical expenses face a penalty of 20 percent of the funds used for such expenses. Funds spent for nonqualified purposes are also subject to income tax.

Coverage of Adult Children

While the Patient Protection and Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on his HSA-qualified high-deductible health plan is not eligible to use HSA funds to pay that child’s medical bills.

If account holders can't claim a child as a dependent on their tax returns, then they can't spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:

  • Has the same principal place of abode as the covered employee for more than one-half of the taxable year.

  • Has not provided more than one-half of his or her own support during the taxable year.

  • Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled.


What can HSA funds be used for?
The funds belong to the individual or employee. Funds can be withdrawn for any purpose, however, if not withdrawn 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. 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 premiums.

Is an HSA allowed for those small business owners who are not eligible for an HRA?
Yes.

What is the difference between a Medical Savings Account and a Health Savings Account?
HSAs are a significant expansion of the MSA program. Unlike MSAs, HSAs provide the following:

Everyone with a qualified high deductible plan is eligible to participate (includes all size employers, the self-employed, individual and families who are not self-employed). HSAs can be funded by the employer, employee or combination of both within the same calendar year. HSAs are permanent and portable. HSAs allow for larger tax-deferred contributions to custodial accounts. There are broader deductible ranges.

What is a high deductible insurance plan?
For 2008, a high deductible insurance plan is defined as a health plan with a minimum deductible of $1100 for self-only coverage and $2,200 for family coverage. The maximum out-of-pocket expenses for allowed costs must be no more than $5,800 for self-only coverage and no more than $11,200 for family.

When will Assurant Health start offering HSAs?
Health Savings Accounts have been available since January 1, 2004.

Will the MSA continue to be available? What about existing MSA accounts?
MSAs are scheduled to end December 31, 2003. Existing accounts can either be “grandfathered” or they can move to an HSA. Information on moving from an existing MSA to an HSA will be forthcoming.

Medical Expense Example List (PDF)
Application - Disclosure Statement (PDF)
Marketing Brochure (PDF)

 

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