What is a Health Savings Account?

Health Savings Account

Health Savings Accounts (HSA) were created in 2003. They are special individual-owned accounts used to pay for current and future medical expenses. Accounts are owned by the individual who can decide whether or not to contribute, how much to use for medical expenses, which medical expenses to pay from the account, if any and what type of investment to grow the account.

The employer cannot restrict distributions or rollovers. However, the Custodian or Trustee can put reasonable limits on accessing the money in the account. Unspent balances remain in the account. This is the reason HSAs expect to hold down claims. It is believed that since the funds belong to the account holders they will be encouraged to spend their funds more wisely on their medical care and to shop for the best value for their health care dollars. The accounts can also grow through investment earnings just like an IRA.

HSAs are used with High Deductible Health Plans (HDHP). This is an insurance plan that does not cover first dollar medical expenses (except for preventive care).

Advantages to the Employer:

  • Funds deposited in an HSA are 100% tax deductible

  • HDHP plans are designed to make employees more aware of health care expenses and help them become better consumers. This reduces claims and lowers health insurance expenses

  • Reduced premiums

  • Employees are more aware of health care costs because the funds in the HSA account belong to them

  • Younger employees feel they have a meaningful benefit

Advantages to the Employee:

  • Funds deposited in an HSA are 100% tax deductible

  • Funds in an HSA are available for any medical expense that are not covered by the health insurance plan but quality as a deduction according to the IRS (i.e. eye glasses)

  • The money can accrue for future use

  • Can use funds to pay for COBRA, Medicare or long-term care premiums

Who Is Eligible for an HSA?

Any individual that:

  • Is covered by an High Deductible Health Plan (HDHP)

  • Is not covered by other health insurance

  • Is not enrolled in Medicare

  • Can’t be claimed as a dependent on someone else’s tax return

  • Children cannot establish their own HSAs

  • Spouse’s can establish their own HSAs if eligible

  • There are not income limits on who may contribute to an HSA

  • No requirement of having earned income to contribute to an HSA

What Other Health Coverage is Allowed for You to Still be Eligible for an HSA?

  • Specific disease or illness insurance and accident, disability, dental care, vision and long-term care insurance.

  • Employee Assistance Programs (EAP), diseases management programs, or wellness programs providing they do not provide significant benefits in the nature of medical care or treatment

  • Discount pharmacy cards

  • Eligibility for VA benefits, unless you have received benefits in the prior three months

If you are an employer or an employee with questions or concerns about Health Savings Plans, please contact us at 9201.255.6239 or

The contents of this writing are intended for general information purposes only and should not be construed as professional advice or opinion in any specific facts or circumstances.

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