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Five Facts About Health Savings Accounts

| April 07, 2017
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History –  These accounts were created in 2003 as high deductible health plans.

What are they?

They are alternative to traditional medical or health insurance for individuals or families and considered a high deductible health plan. 

How they can be used?

There is a maximum limit on the sum of annual deductible and out of pocket medical expenses that you must pay for covered expenses.

  1. Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals. 2. Routine prenatal and well-child care. 3. Child and adult immunizations. 4. Tobacco cessation programs. 5. Obesity weight-loss programs. 6. Screening services. This includes screening services for the following:
  2. Cancer b. Heart and vascular diseases. c. Infectious diseases. d. Mental health conditions. e. Substance abuse. f. Metabolic, nutritional, and endocrine conditions. g. Musculoskeletal disorders. h. Obstetric and gynecological conditions. i. Pediatric conditions. j. Vision and hearing disorders

Self-only coverage Family coverage Minimum annual deductible $1,300 $2,600 Maximum annual deductible and other out-of-pocket expenses* $6,550 $13,100

Annual contribution limit in 2017 under section 223(b)(2)(A) for an individual was $3,400 and for a family $6,750.  If you are 55 or older there is $1,000 catch up contribution.

If you are Medicare eligible your contribution limit is $0.

Distributions from a HAS:

  1. Qualified Medical Expenses – These are the same expenses that generally qualify for medical and dental deductions.  This does include prescription medicines. These distributions are income tax free and required to be reported on form 8889.

 

  1. Insurance premiums – These include long term care insurance. COBRA or health care continuation coverage.  Health care coverage while on unemployment. Medicare and other health care coverage excluding Medicap policies if you are 65 or older.

How they differ from FSAs (Flexible Spending Arrangements)?

FSAs are also employer based or employer only accounts so an individual cannot set one up on their own.  The contribution limits are lower at $2,550. 

There are no reporting requirements for FSAs which is a major difference between a FSA and HAS.  You can withdrawal funds for medical expenses even if you haven’t placed the money into the account yet. 

The FSA balance must be used in the calendar or it is forfeited unlike HSAs where the balance can rollover year to year.  You cannot pay for health insurance premiums or long term care insurance premiums from a FSA.

What’s the big advantage?

It’s really a triple play; tax deductible contributions, tax deferred growth, and tax free distributions for qualified medical expenses. 

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