Q: What is a Health Savings Account?
A: Health Savings Accounts (HSAs) are tax-exempt savings accounts that earn interest. They combine tax-free savings earmarked for qualified medical expenses with a qualified High Deductible Health Plan (HDHP).
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Q: What is a qualified High Deductible Health Plan (HDHP)?
A: A qualified High Deductible Health Plan (HDHP) that has a minimum deductible of $1,000 for self-only coverage (2005) and a minimum deductible of $2,000 for family coverage (2005). It will also have a maximum out-of-pocket limit of $5,100 for self-only coverage and $10,200 for family coverage.
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Q: Why a High Deductible Health Plan?
A: To get the benefits of an HSA, the law requires that the savings account be combined with a High Deductible Health plan. High Deductible Health Plan costs less than traditional low deductible coverage, because a company does not have to process and pay claims for routine, low-dollar medical care.
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Q: Who is eligible?
A: Eligibility is determined on a month-to-month basis. An eligible individual must NOT be:
- Participating in any other health coverage that reimburses for similar expenses.
- Participating in Medicare.
- Claimed as a dependent on another person's tax return.
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Q: How does it work?
A: Money deposited tax-free into an HSA is used for qualified medical expenses not covered by insurance or that fall short of your plan's deductible.
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Q: What are the fees associated with an HSA?
A: Fees vary. See our fee schedule for details.
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Q: What are the benefits of an HSA?
A: HSAs offer the benefit of tax-advantaged savings and reduced taxable income, which can appeal to a number of different income-level workers. Individuals can set aside income that is tax-free and are able to build an asset that they can use in their retirement years; and/or can reduce the cost of coverage.
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Contributions
Q: How much can I contribute?
A: The lesser amount of either the deductible of $2,650 (2005) for single coverage or $5,250 (2005) for family coverage.
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Q: What are the "catch-up" contributions for individuals 55 or older?
A: For individuals (and their spouses covered under the HDHP) between the ages of 55 and 65, the catch-up amount is $600 (2005). The amount will increase in $100 increments until it reaches $1,000 in calendar year 2009.
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Q: In what form must contributions be made to an HSA?
A: Contributions must be made in cash. Contributions may not be in the form of stock or other property.
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Q: What is the latest date that I can contribute to my HSA?
A: The filing date of the current year tax return. Normally April 15th unless you file for an extension.
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Q: If one or both spouses have a qualified high deductible health plan with family coverage, how is the contribution computed?
A: The contribution limit is based on the lowest deductible amount. It is then divided equally between the spouses unless they agree on a different division.
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Q: Are rollover contributions to HSAs permitted?
A: Rollover contributions from MSAs and other HSAs are permitted. Rollovers are not subject to the annual contribution limits. Rollover amounts from an IRA, HRA or FSA are not permitted.
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Q: What happens to my HSA funds if I exceed my contribution limit?
A: It is the responsibility of the account holder to determine if contributions have exceeded the maximum allowable amount. It is also the responsibility of the account holder to request the distributions of those funds, and the payment of income tax on those funds and the a pro-rata share of the earnings, and the payment of the 10% penalty tax.
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Q: Can I have an HSA if I am enrolled in Medicare?
A: If you have already enrolled in Medicare, you are not eligible to have an HSA. If you had an HSA before you enrolled in Medicare, you can keep it and use it for qualified medical expenses. However, you cannot continue to make contributions to your HSA after you have enrolled in Medicare.
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Q: I am eligible for Medicare, but I have not enrolled. Can I have an HSA?
A: If you are Medicare eligible, but you have not enrolled in Medicare, you qualify for an HSA.
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Q: I have a self-only, high deductible health plan and my spouse has a low deductible plan, can I make contributions to an HSA?
A: Yes, you can contribute to an HSA since you are only covered under the high deductible health plan.
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Q: Both spouses have qualified high deductible health plans. One has family coverage and the other has single coverage, and they both want to contribute to their individual HSAs. What is the contribution limit?
A: The contribution limit would be the family limit, $5,250 (2005). The family limit could be divided between them however they choose to divide it.
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Q: Husband and wife work for different employers, each have an HDHP and are eligible to contribute to an HSA. The husband is allowed to contribute to his HSA through a cafeteria plan, but his wife is not. Can the husband simply make all the contributions to both HSAs through his cafeteria plan?
A: No, only the husband can make contributions through his cafeteria plan since his employer is the one that is allowing him to contribute through a cafeteria plan.
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Q: Can the funds be distributed from the HSA if they are mistakenly put in the wrong account?
A: Every account has a non-forfeitable interest in his or her HSA. The answer would depend on all of the facts and circumstances. If the trustee did not follow the employer's instructions, that would be a very different situation, and easier to answer, than where the employer is actually responsible. Perhaps reducing a future contribution would be a better solution than distributing money from an individual's account.
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Using Your HSA (distributions)
Q: What are qualified medical expenses?
A: Expenses covered are dental, prescription drugs, vision, doctors' office visits, hearing, hospital bills, etc.
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Q: Can I pay my health insurance premiums with funds from my HSA?
A: You can only use your HSA funds to pay for health insurance premiums if you are collecting Federal or State unemployment benefits, or if you have COBRA continuation coverage through a former employer.
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Q: What happens to the money in my HSA if I lose my qualified high deductible health plan?
A: Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses. However, you will not be able to contribute funds while you are not covered by a qualified high deductible health plan.
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Q: What happens to the money in my HSA if I don't use it by the end of the year?
A: The money stays in the account. There's no "use it or lose it" rule on your health savings account.
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Q: How do I access the money in my HSA?
A: Use your Visa debit card to pay for qualifying medical expenses. You may also submit a distribution via the internet, by mail or by fax.
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Q: Can my spouse or dependant have a Visa debit card?
A: Yes, your spouse or dependant may have a Visa debit card. They must be at least 18 years of age and there may be a fee for ordering the additional card.
To request a card, please complete the Request for Dependent Debit Card form.
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Q: Can I close my HSA at any point?
A: You may close your HSA at any time, but if you distribute money for non-qualified expenses then the amount is taxable as ordinary income and a 10% tax penalty is charged.
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Q: What happens to my HSA if I change employers?
A: The money stays in the account, you can keep your account open and still use funds for qualified medical expenses.
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Q: What happens to my HSA if I die?
A: The HSA account is transferred to the named beneficiary. If the beneficiary is the surviving spouse, then the account stays the same and can be used for qualified medical expenses. Any distributions that are non-qualified medical expenses are subject to income tax rules. If the beneficiary is not the surviving spouse, then the HSA ceases to be an HSA and is subject to income tax.
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Q: What happens when a distribution is mistakenly made for non-qualified medical expenses? Can the funds be re-deposited into the HSA?
A: The non-qualified medical expense can be "replaced" with a qualified medical expense that is incurred during the same calendar year.
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Q: If I participate in an HSA, can I still keep my Health FSA?
A: You can participate in an HSA and a Health FSA, however, the Health FSA can only reimburse Vision and Dental expenses (does not include over-the-counter items). This is referred to as a "Limited Flex Account."
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Q: Do I need to provide receipts to show proof of an eligible medical expense in order to distribute funds from my HSA?
A: You are not required to submit receipts in order to receive funds from your HSA. You should keep those receipts for your records to show that the distribution was for eligible medical expenses.
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Investments
Q: When can I invest the money in my HSA?
A: You may begin choosing invest options once your account reaches a balance of $2,500. Please contact us for a list of the mutual funds that are available.
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Q: Where can I invest the money in my HSA?
A: American Fidelity Health Services Administration provides a strong offering of no load mutual funds that cross all investment risk tolerances such as American Funds, AIM, Vanguard and Morgan Stanley. You pick the mutual fund that best suits your needs and risk tolerance from our carefully monitored list.
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Tax Issues
Q: Are distributions from an HSA taxable?
A: Distributions from HSAs are not taxable if the distributions are for qualified medical expenses.
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Q: What if I use my HSA money for non-qualified expenses?
A: Money distributed for non-qualified expenses is taxable as ordinary income and a 10% tax penalty is charged. (If over age 65, distributions for non-qualified expenses are only subject to income taxes.) Always check with your tax accountant or the IRS to ensure accuracy.
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Q: Is there as maximum balance that may be accumulated in my HSA?
A: No, there is no maximum balance on HSAs.
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Q: Can a person file the HSA Form 8889 with their 1040EZ or 1040A?
A: No, not at this time and there are no plans to do so in the near future.
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Q: Is there an IRS approved list of medical expenses that I can spend
my tax free Health Savings Accounts funds on?
A: Yes, there is a list of allowable expenses published by the U.S. Treasury Department,
actually the Internal Revenue Service, referred generally as the '213 (d)' list, since it appears
in IRS regulation 213 (d). Here is a link to the list of allowable/not allowable expenditures:
http://www.irs.gov/pub/irs-pdf/p502.pdf. In general, you can spend tax-free from your
Health Savings Account on all medical, dental (including braces for your children), and vision
expenses, chiropractic visits, and even acupuncture, but not on your insurance premium, unless you
are unemployed and are collecting Federal unemployment benefits. See our listing of
HSA Eligible Expenses.
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Employers
Q: Can HSAs be combined with other employer-sponsored health plans like Flexible Spending Accounts (FSA), Health Reimbursement Arrangements (HRA) or Cafeteria Benefit Plans (Sec 125 plans)?
A: Yes. In fact, in many cases this may be the best way to offer HSAs on a group level because it helps avoid the administrative issues. American Fidelity and American Fidelity Health Services Administration can offer that service.
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Q: May the employer make an HSA contribution directly to employee accounts?
A: Yes. Both employee and employer may make contributions to an HSA.
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Q: Can the contribution be salary deducted?
A: Yes, this is called an employee contribution.
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Q: How are the HSA contributions reported on Form W2?
A: Tax qualified employer contributions are reported in box 12 of Form W2 with code W. Employee contributions are reported the same as regular wages and subject to income tax withholding, social security and Medicare taxes.
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Q: What happens to HSA funds when an employee is no longer covered by the qualifying high deductible health plan, leaves the company or turns age 65?
A: The funds remain in the account and can be used for qualified medical expenses.
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Q: Why choose American Fidelity Health Services Administration?
A: We will be your custodian and administrator no matter which insurance provider you choose. Accessing your fund is easy through a debit card, online payment request submission and downloadable payment request form. We also offer online access to your account 24/7, where you can view your account balance, recent transactions, portfolio allocation and mutual fund trades.
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