Health Savings Accounts
A Health Savings Account (HSA) is a checking account with a Debit Card that can be used for qualified medical expenses. In more technical terms, they are tax-favored consumer savings arrangements for individual and families covered by high deductible health insurance plans (IRC Sec. 223). HSAs allow for tax-deductible contributions and tax-free distributions of principal and earnings if distributed amounts are used for qualified medical expenses. HSA participants need not be self-employed or employed by small employers to qualify.
To be eligible for an HSA, all of these statements must be true:
- Covered by an HSA-eligible high deductible health plan (HDHP)
- Not covered by a non-HDHP that provides coverage for any benefit also covered under the HDHP
- Not enrolled in Medicare
- Not eligible to be claimed as a dependent on another person's tax return
(NOTE: Contributions to an HSA using online banking are considered current year.)
Employers: By offering HSAs through their cafeteria plans and/or providing employer HSA contributions, employers potentially have much to gain.
- Tax deduction for contributions
- Increased ability to attract and retain employees as a result of providing expanded employee benefits
- Lower overall health insurance costs when an employer switches from a low to a high deductible health plan
Eligible Employees: Eligible individuals might benefit from participating in an HSA program in the following ways.
- Ability to carry over contributions allows HSA account beneficiaries to use HSA assets in successive years for medical expenses or retirement
- Portability of assets allows HSA account beneficiaries to take their HSA assets wherever they go
- Payment of medical costs with pre-tax dollars from HSAs represents a substantial tax advantage
- Potential for additional employee benefits as a result of the cost saving to employees