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Health Savings Accounts

It's an exciting new option in health care coverage. A Health Savings Account (HSA) is an account that you and/or your employer may deposit money into to save for future medical expenses. This special tax-qualified account allows you access to your healthcare dollars to pay for a variety of your healthcare expenses, such as dental, prescriptions, chiropractic, optical, and many others.

Important: HSA eligible expenses may or may not apply to your insurance deductible. Review your insurance plan for details.

Please note Eligible Expenses may not apply to your insurance deductible. Review your plan for details. This listing of eligible and non eligible expenses is a sample. For more information please review IRS Publication 502 "Medical and Dental Expenses". This publication can be found at the Internal Revenue Service's website www.irs.gov

The HSA Model

How HSAs Work

Links

If you would like to learn more about HSAs or would like to schedule a presentation at your business, please contact Jessica Webb @ 517-783-1500.

Qualifications

  • You must be covered under a high deductible health plan (HDHP)
  • You must not be covered by any other health plan that is not an HDHP
  • You must not be enrolled in Medicare
  • You must not be claimed as a dependent on another person's tax return

Benefits of an HSA with CNB coupled with a HDHP

  • Lowered insurance premiums
  • Both an employee and an employer can make contributions
  • All contributions are made with tax advantage dollars
  • Unspent contributions roll over from year to year - what you don't spend you save
  • HSAs are portable even if you change jobs
  • Employees become aware of healthcare costs, and become more educated consumers
  • Employees/Individuals own each individual account

Frequently Asked Questions

What is an HSA?

An HSA is a tax-exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who, for the months for which contributions are made to an HSA, is covered under a high-deductible health plan.

Who is a qualified HSA trustee or custodian?

Any insurance company or any bank can be an HSA trustee or custodian. In addition, any other person already approved by the IRS to be a trustee or custodian of IRAs is automatically approved to be an HSA trustee or custodian.

Does the HSA have to be opened at the same institution that provides the HDHP?

No. The HSA can be established through a qualified trustee or custodian who is different from the HDHP provider. Where a trustee or custodian does not sponsor the HDHP, the trustee or custodian may require proof or certification that the account beneficiary is an eligible individual, including that the individual is covered by a health plan that meets all of the requirements of an HDHP.

Who may contribute to an HSA?

Any eligible individual may contribute to an HSA. For an HSA established by an employee, the employee, the employee's employer or both may contribute to the HSA of the employee in a given year. For an HSA established by a self-employed (or unemployed) individual, the individual may contribute to the HSA. Family members may also make contributions to an HSA on behalf of another family member as long as that other family member is an eligible individual.

Can anyone make catch-up contributions to a Health Savings Account?

Individuals 55 and older who are covered by an HDHP can make additional catch-up contributions. They may make contributions anticipating medical expenses that will not be covered under Medicare - such as a portion of prescription drug costs or Medicare Part A & B premiums. For individuals age 55 and older, additional catch-up contributions to HSA are allowed up to $1000. Contributions must stop once an individual is enrolled in Medicare.

I turned 55 this year. Can I make the full "catch-up" contribution?

If you had HDHP coverage for the year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year. If you did not have coverage for the full year, you must pro-rate your "catch-up" contribution for the number of full months you were "eligible", i.e. had HDHP coverage.

In what form must contributions be made to an HSA?

Contributions to an HSA must be made in cash. For example, contributions may not be made in the form of stock or other property. Payments for the HDHP and contributions to the HSA can be made through a cafeteria plan.

What is the tax treatment of an eligible individual's HSA contributions?

Contributions made by an eligible individual to an HSA are deductible by the eligible individual in determining adjusted gross income (i.e. above-the-line). The contributions are deductible whether or not the eligible individual itemizes deductions. However, the individual cannot also deduct the contributions as medical expense deductions under section 213.

What is the tax treatment of an HSA?

An HSA is generally exempt from tax (like an IRA), unless it has ceased to be an HSA. Earnings on amounts in an HSA are not includable in gross income while held in the HSA (i.e. inside buildup is not taxable).

Are rollover contributions to HSAs permitted?

Rollover contributions from Archer MSAs and other HSAs into an HSA are permitted. Rollover contributions need not be in cash. Rollovers are not subject to the annual contribution limits. Rollovers from an IRA, from a health reimbursement arrangement (HRA), or from a health flexible spending arrangement (FSA) to an HSA are not permitted.

When is an individual permitted to receive distributions from an HSA?

An individual is permitted to receive distributions from an HSA at any time.

Must employers who make contributions to an employee's HSA determine whether HSA distributions are used exclusively for qualified medical expenses?

No. The same rule that applies to trustees or custodians applies to employers.

Can an HSA be offered under a cafeteria plan?

Yes. Both an HSA and an HDHP may be offered as options under a cafeteria plan. Thus, an employee may elect to have amounts contributed as employer contributions to an HSA and an HDHP on a salary-reduction basis.