Understanding a Health Savings Account (HSA)

What is a health savings account?

Otherwise known as an HSA, a health savings account can be funded with your tax-exempt dollars, by your employer, by a family member or by anyone else on your behalf. 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.

What is a high-deductible health plan (HDHP)?

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.

Type of CoverageMinimum Annual Deductible Maximum Annual Out-of- Pocket
Individual $1,250 (same in 2014)$6,250 ($6,350 for 2014)
Family $2,500 (same in 2014)$12,500 ($12,700 for 2014)

How does an HSA work?

Part 1: Qualifying High-Deductible Health Insurance Plan
Provides health care benefits after the deductible has been met.

Part 2: Health Savings Account
Pays for out-of-pocket expenses incurred before the deductible is met.

What are the steps in an HSA?

1. Employee, employer, family member and/or someone else funds the employee’s HSA account.

2. Employee seeks medical services.

3. Medical services are paid by HDHP, subject to deductible and coinsurance.

4. Employee may seek reimbursement from HSA account for amounts paid toward deductible and coinsurance.

5. Deductible and out-of-pocket maximum fulfilled.

6. Employee may be covered for all remaining eligible expenses.*

The HDHP can provide preventive care benefits without the required minimum deductible.

*Subject to plan design; check your HDHP 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 to access your HSA funds, if your HSA custodian or trustee allows it. You may use your HSA for non-medical expenses. However, HSA amounts that are used for non-medical expenses are taxable as income to you and are generally subject to an additional 20% penalty.

What is a deductible?

It is a set dollar amount determined by your plan that you must pay out-of-pocket or from your HSA account before insurance coverage for medical expenses can begin.

How much can I contribute to an HSA?

The annual HSA contribution limits for 2013 are:

• $3,250 for individual coverage and $6,450 for family coverage

The annual HSA contribution limits for 2014 are:

• $3,300 for individual coverage and $6,550 for family coverage Individuals age 55 or older may be eligible to make a catch-up contribution of $1,000.

What is the difference between an HSA and Flexible Spending Account (FSA)?

• An HSA can roll over unused funds from year to year and is portable if the employee leaves the company.

• An FSA cannot roll over unused funds from year to year and is not portable.

Can I contribute to both an HSA and an FSA in the same year?

General purpose FSA coverage will make you ineligible for HSA contributions. However, certain types of FSA designs will not prevent your HSA eligibility. For example, if you are covered under a “limited FSA” (for example, an FSA that covers vision, dental and/or preventive care expenses on a first-dollar basis), you can be eligible for an HSA.

Also, you can be eligible for an HSA if you are covered under a “post-deductible FSA” (that is, an FSA that only pays or reimburses for preventive care or for medical expenses that are incurred after the minimum annual HDHP deductible has been met).

Please ask if a limited or post-deductible FSA is available to you.

What if I enroll in an HSA in the middle of the year?

Your HSA contributions are generally determined on a monthly basis. However, if you enroll in an HSA mid-year, you are allowed to make a full year’s contribution, provided you are eligible on Dec. 1 of that year and you remain eligible for HSA contributions for at least the 12-month period following that year.

Why should I elect an HSA?

1. Cost Savings

• Triple tax benefits

o HSA contributions are excluded from federal income tax

o Interest earnings are tax-deferred

o Withdrawals for eligible expenses are 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.

2. 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.

3. Choice

• 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.

• You decide whether to use your HSA dollars to pay for non-medical expenses and incur the additional taxes.

DownLoad/Print the PDF Article: Understanding Health Savings Accounts - HSAs.pdf

Are You Considering an HDHP/HSA?

Enrolling in your employer’s company- sponsored, high-deductible heath plan (HDHP) means lower premiums and the ability to use pretax dollars to pay for out-of- pocket costs. HDHPs are growing in popularity, find out if this is the right plan for you.

Frequently Asked Questions about HSA Plan Usage

How do I manage my HSA? What expenses are eligible for reimbursement from my HSA? Can the funds in an HSA be invested? Find out the answers to these health saving account questions and more about.

10 Reasons to Love a Health Savings Account

With the soaring cost of health care, many consumers are turning to the health savings account (HSA) as a way to combat rising expenses. The HSA offers consumers a manageable way to take control of their health expenses.

Insurance News Video Updates

Department of Labor Overtime Rules

We will explain how to stay compliant in light of amended overtime regulations effective December 2016

Montgomery & Graham - We Solve Problems

Let us help you find solutions to the challenges your business faces today and tomorrow. Whether your looking to protect your family, home, auto, or business, at Montgomery & Graham Inc we have got you covered. Our team has worked with businesses of all sizes, and individuals with unique circumstances to provide Washington & Oregon health insurance they can trust.

Schedule a consultation to find out how you can take control of your health insurance cost and offer employee benefit packages that excel in company wellness and employee retention. Understand your options and know about the latest insurance strategies, and save money offering innovative healthcare and risk management solutions. We solve problems at M&G, contact us today!

Contact us for a Quote

Setup a free appointment to find out how you can start saving money using the latest insurance strategies!

Employee Benefits
Property & Casualty
Indivdual Insurance

Get a free Health Plan Benchmark Report

a report showing stats for Out of Pocket Maximum's, Co-Insurance, Deductibles, Office Visit Copay, Emergency Room Copay, and Prescription Drug Deductible measured against your industry

See how your employee benefits compare to your competition, FREE REPORT

M&G Benefits resources offer you the lastest in insurance and health care complaincy. Stay up to date on the need to know news regarding employee benefits.Insurance Industry Briefs

M&G Benefits resources offer you the lastest in insurance and health care complaincy. Stay up to date on the need to know news regarding employee benefits.

Answers to the Most Frequently Asked Employee Benefit Questions

"What is Coinsurance?", "What is an EOB?", "What is a PPO?" Confused about common health insurance benefits terms? These FAQs cover the basics to take the mystery out of coverage terms

Benefit Counseling: The Key to Successful Enrollment

As an employer, you want employees to understand and appreciate the substantial value of their benefits. It is important that employees understand their benefits when they are enrolling to ensure they make the best choice for themselves, their family, their lifestyle and their budget.

Managed Care: Health Insurance Terminology

What is Health maintenance organization (HMO)? Or how about Preferred provider organization (PPO)? This article defines managed care and several other terms related to medical insurance.

Consumer Driven Health Care: Health Insurance Terminology

CDHC plans are becoming increasingly popular and truly put you, the consumer, in the driver’s seat. Feel more confident about controlling your health coverage with the most common CDHC terms defined.

Employee Medical Benefits: Self-Funded vs. Fully Insured

All group medical benefit plans fall into one of two categories: self-funded or fully insured. This article explains the differences between self-funded and fully insured employee medical benefits.

The Advantages of Self-funding

In today’s business climate, managers need benefits solutions as resourceful and cutting-edge as the organizations they run. Employers of all sizes are looking to mold their plans around the requirements of their businesses.

Level Funding a Self-funding Option

If you desire the freedom of a self-funded insurance plan but need a little more certainty for your budgeting concerns, level funding might be an option for you. Level funding is an option that can accompany a self-funded plan.

Understanding a Health Reimbursement Arrangement (HRA)

A Health Reimbursement Arrangement (HRA) is an employer-funded account that is designed to reimburse employees for qualified medical expenses that are paid for out-of-pocket. This article answers common questions about HRAs.

Health Care Reform: Workplace Wellness Program Incentives

This Brief provides an overview of the different types of workplace wellness programs and the Affordable Care Act’s rules on the incentives or rewards that can be offered under the programs.

Workplace Wellness: Focusing Your Efforts

After an organization has completed the analysis of the worksite assessment and employee survey and taken a look at the array of program strategies to be considered, it's time to decide where to focus the wellness efforts. This article discusses things to consider when developing the wellness plan.

Workplace Wellness: Using Incentives in Wellness Programs

Incentives are about getting people to do things they would not generally do. This article explains why and how to incorporate incentives into your wellness program.

An Employer's Guide to Promoting Wellness at the Workplace

An article explaining the benefits of promoting wellness at the workplace, the best practices to follow when developing a wellness program and how to develop an operating plan for a wellness program.

Consumer-Driven Health Care: Creating Choices For You

The consumer-driven model is all about educating the patient. An educated patient can better understand health care and health costs and then make better decisions when faced with medical expenses.