Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) were created by Public Law 108-173, the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," and signed into law on December 8, 2003. Health Savings Accounts will change the way millions meet their health care needs because they are designed to help individuals save for qualified medical and retiree health expenses on a tax-advantaged basis.

Any adult who is covered by a HSA-compatible high-deductible health plan (and has no other first-dollar coverage) may establish an HSA. Tax-advantaged contributions can be made in three ways:

the individual or family can make tax deductible contributions to the HSA even if they do not itemize deductions;
the individual's employer can make contributions that are not taxed to either the employer or the employee; and,
employers sponsoring cafeteria plans can allow employees to contribute untaxed salary through salary reduction.

To encourage saving for health expenses after retirement, individuals age 55 and older are allowed to make additional catch-up contributions to their HSAs. Once an individual enrolls in Medicare they are no longer eligible to contribute to their HSA.

Amounts contributed to an HSA belong to the account holder and are completely portable. Funds in the account can grow tax-free through investment earnings, just like an IRA.

Funds distributed from the HSA are not taxed if they are used to pay qualified medical expenses. Unlike amounts in Flexible Spending Arrangements that are forfeited if not used by the end of the year, unused funds remain available for use in later years.

HSA Frequently Asked Questions

THE BASICS OF HSAS

What is a Health Savings Account ("HSA")?

A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.

You own and you control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.

What Is a "High Deductible Health Plan" (HDHP)?

You must have an HDHP if you want to open an HSA. Sometimes referred to as a "catastrophic" health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn't pay for the first several thousand dollars of health care expenses (i.e., your "deductible") but will generally cover you after that . Of course, your HSA is available to help you pay for the expenses your plan does not cover.

For 2005, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,000 (self-only coverage) or $2,000 (family coverage). For 2006, the amounts increase to $1,050 and $2,100, respectively. The annual out-of-pocket (including deductibles and co-pays) for 2005 cannot exceed $5,100 (self-only coverage) or $10,200 (family coverage). For 2006, these amounts increase to $5,250 and $10,500, respectively. HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and co pays & coinsurance) for non-network services.

How can I get a Health Savings Account?

Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. Your employer may also set up a plan for employees as well.

How much does an HSA cost?

An HSA is not something you purchase; it's a savings account into which you can deposit money on a tax-preferred basis. Carney Cargill, Inc.
375 NE Ericksen Avenue
Bainbridge Island, WA 98110
Phone: 206-842-8987 The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive plan that will cover you should your medical expenses exceed the funds you have in your HSA.