Understanding an HSA
A health savings account, otherwise known as an HSA, can be funded with your tax-exempt dollars, by your employer, or both. Dollars from the account can help pay for eligible medical expenses not covered by an insurance plan, including the deductible, coinsurance, and even health insurance premiums, in some cases.
Who is eligible for an HSA?
Anyone who is:
- Covered by a high-deductible health plan (HDHP);
- Not covered under another medical plan that is not an HDHP;
- Not entitled to (eligible for AND enrolled in) Medicare benefits; or
- Not eligible to be claimed on another person’s tax return.
A high-deductible health plan is a plan with a minimum annual deductible and a maximum out-of-pocket limit as listed below. These minimums and maximums are determined annually by the Internal Revenue Service (IRS) and are subject to change.
Those with individual coverage have a minimum annual deductible of $1,200 in 2012 and $1,250 in 2013. Individual coverage has a maximum out-of-pocket limit of $6,050 in 2012 and $6,250 in 2013. Those with family coverage have a minimum annual deductible of $2,400 in 2012 and $2,500 in 2013. Family coverage has a maximum out-of-pocket limit of $12,100 in 2012 and $12,500 in 2013.
What are the steps in an HSA?
- Employee and/or employer funds HSA account.
- Employee seeks medical services.
- Medical services are paid by HDHP, subject to deductible and coinsurance.
- Employee may seek reimbursement from HSA account for amounts paid toward deductible and coinsurance.
- Deductible and out-of-pocket maximum fulfilled.
- Employee may be covered for all remaining eligible expenses.*
Preventive care is covered at 100 percent.
*Subject to plan design; check Summary Plan Description.
When do I use my HSA?
After visiting a physician, facility or pharmacy, your medical claim will be submitted to your HDHP for payment. Your HSA dollars can be used to pay your out-of-pocket expenses (deductibles and coinsurance) billed by the physician, facility or pharmacy, or you can choose to save your HSA dollars for a future medical expense.
You may also be able to use an HSA debit card at the point of purchase for certain payments, such as copayments or prescriptions, if your plan allows it.
How much can I contribute to an HSA?
As noted by federal law, the annual contribution limits are:
- 2012: $3,100 for individual coverage and $6,250 for family coverage
- 2013: $3,250 for individual coverage and $6,450 for family coverage
Individuals age 55 or older may be eligible to make a catch-up contribution of $1,000.
What if I enroll in an HSA in the middle of the year?
If you enroll in an HSA mid-year, you are allowed to make a full year’s contribution, provided that you remain covered by the HSA for at least the 12-month period following that year.
Why should I elect an HSA?
- Tax benefits
- HSA contributions are excluded from federal income tax - Interest earnings are tax-deferred - Withdrawals for eligible expenses exempt from federal income tax
- Reduction in medical plan contribution
- Unused money is held in an interest-bearing savings or investment account
Note: Many states have not passed legislation to provide favorable state tax treatment for HSAs. Therefore, amounts contributed to HSAs and interest earned on HSA accounts may be included on the employee’s W-2 for state income tax purposes.
Long-Term Financial Benefits
- Save for future medical expenses
- Funds roll over from year to year
- Account is portable—you take it with you even if you leave the company.
- You control and manage your health care expenses.
- You choose when to use your HSA dollars to pay your health care expenses.
- You choose when to save your HSA dollars and pay health care expenses out-of-pocket.
If your company is considering an HSA, contact a Caravus Employee Benefit Consultant for more information.