Health Savings Accounts (HSAs)
HSAs are tax-exempt accounts set up by an employer or individual to pay eligible health care expenses including health coverage deductibles, copayments, and other out-of-pocket prescribed medical expenses. An HSA must be established with a high-deductible health plan so that the HSA is used to pay routine expenses and the health plan is used to pay more significant expenses.
HSAs allow employers and consumers to set aside funds on a tax-free basis to pay health care expenses, including expenses that may not be covered by traditional health coverage. For example, HSAs may be used for vision and dental services, prescription drugs, over-the-counter drugs (if you have a prescription for them), long-term care services, and certain health insurance premiums in retirement.
HSAs are available to anyone who is:
- covered under a qualifying high-deductible health plan on the first day of the month,
- not covered by any other health coverage (with some exceptions),
- not enrolled in Medicare, and
- not claimed as a dependent on another person's tax return.
A qualified high deductible health plan must have a minimum deductible of $1,300 for single (self-only) coverage and $2,600 for family coverage (2015). Out-of-pocket expenses must be limited to $6,550 for single coverage and $13,100 for family coverage (2016). The plan may provide first-dollar coverage for preventive health services.
You cannot have any other health coverage that reimburses you for health expenses you incur, unless it is another HSA-qualified high-deductible health plan. However, the maximum annual contribution to the account remains in force.
Contributions may be made by the individual, an employer, or a family member.
The annual HSA contribution is limited to the amount of your health plan's deductible, subject to a cap of $3,350 for single coverage and $6,750 for family coverage (2016). Individuals over age 55 can make additional catch-up contributions until they enroll in Medicare.
TAX STATUS ON CONTRIBUTIONS:
Amounts contributed to an HSA, interest earned on the account, and amounts used to pay eligible expenses are not taxed. Interest and any capital gains on investments accumulate on a tax-deferred basis until age 65. However, amounts used to pay non-eligible expenses are taxed and may result in additional penalties.
ELIGIBLE HEALTH CARE EXPENSES:
An HSA may be used to pay for the diagnosis, cure, mitigation, treatment, or prevention of disease; prescription and over-the-counter drugs; qualified long-term care services and insurance costs; COBRA coverage; qualified health insurance costs for retirees; and more. Effective January 1, 2011, Section 9003 of the Affordable Care Act allows reimbursement of over-the-counter medicines or drugs only if they are purchased with a prescription. This does not apply to the purchase of insulin, even if it is purchased without a prescription. In accordance with the Affordable Care Act, only prescribed medicines or drugs and insulin will be considered qualifying medical expenses.
You may take an HSA with you when you leave your employer.
FINDING A HIGH-DEDUCTIBLE HEALTH PLAN IN MICHIGAN:
A health carrier or licensed professional should verify for you that the plan you have chosen is actually a qualified high-deductible health plan. Penalties may be imposed for individuals that set up accounts without the appropriate plan in place.
OPENING AN HSA ACCOUNT:
An HSA may be opened with a qualified provider that is recognized by the U.S. Department of Treasury as providing these services. There are federal requirements regarding who may be a Trustee, since HSAs are considered tax-exempt trusts. The Trustee may be a bank, health carrier such as an insurance company, or another person that has satisfied the requirements of the U.S. Department of Treasury.
MORE INFORMATION ON HSAs:
Additional information on HSAs is available on the IRS web site at www.irs.gov.
Supplementary information may also be found by visiting the following link: