An HSA is a tax-advantaged account established to pay for qualified medical expenses of people and families covered under a high deductible health plan (HDHP). Use the money deposited into this account to pay for health care expenses until your deductible is met. Then, in accordance with the terms of your health care plan, your insurance company will pay for covered expenses in excess of your deductible. Any unused funds are yours to retain in your HSA and accumulate toward future health care expenses or your retirement.
What is a "high deductible health plan" (HDHP)?
HDHP description can be found in 2005 IRS publication 969 and may be subject to revision of applicable statutes. An HDHP is a health plan that satisfies certain requirements with respect to deductibles and out-of-pocket expenses. The HDHP features higher annual deductibles (a minimum of $1,100 for Self and $2,200 for Self and Family coverage) than other traditional health plans. The maximum amount out-of-pocket limits for HDHPs in 2007 is $5,250 for Self and $10,500 for Self and Family enrollment. HDHP qualifying deductibles and annual out-of-pocket-expenses are indexed for inflation on an annual basis. Visit www.treas.gov and click on "Health Savings Accounts" for updates.
Who qualifies for an HSA?
An eligible individual is anyone who:
Is covered under a high deductible health plan (HDHP)
Is not covered by any other health plan that is not an HDHP
Is not currently enrolled in Medicare or TRICARE
May not be claimed as a dependent on another person's tax return
What additional health coverage may an individual maintain without losing eligibility for an HSA?
An individual does not fail to be eligible for an HSA merely because, in addition to an HDHP, the individual has coverage for any benefit provided by “permitted insurance.” Permitted insurance is insurance under which substantially all of the coverage provided relates to liabilities incurred under workers' compensation laws, tort liabilities, liabilities relating to ownership or use of property (e.g., automobile insurance), insurance for a specified disease or illness, and insurance that pays a fixed amount per day (or other period) of hospitalization. In addition to permitted insurance, an individual d oes not fail to be eligible for an HSA merely because, in addition to an HDHP, the individual has coverage (whether provided through insurance or otherwise) for accidents, disability, dental care, vision care, or long-term care.
What can I use the HSA for?
The HSA can be used:
To pay for qualified medical, dental, vision and certain over-the-counter and prescription drug expenses as defined in IRS Publication 502.
As supplemental income; however, money withdrawn is taxable and if you are under age 65, it is subject to a 10% penalty.
What if I use my HSA to pay for something other than a qualified medical expense?
It will be subject to applicable income taxes and if you are under age 65, a 10% penalty.
Are health insurance premiums qualified medical expenses?
Generally, health insurance premiums are not qualified medical expenses. Exceptions include qualified long-term care insurance, COBRA health care continuation coverage, any health plan maintained while receiving unemployment compensation under federal or state law, and for those age 65 or over (whether or not they are entitled to Medicare), any employer-sponsored retiree medical coverage premiums for Medicare Part A or B, or Medicare HMO; though premiums for Medigap policies are not qualified medical expenses.