Health Savings Accounts FAQs
What Is An HSA?
A Health Savings Account (HSA) is a special savings account that lets you save money for medical expenses if you have a High Deductible Health Plan (HDHP). As a tax-advantaged account, HSA funds are not subject to federal income taxes. This means you will not be taxed when you put money into an HSA, when your HSA savings grow, or when you use HSA funds to pay for out-of-pocket health care costs, like doctor visits, medicine, and more. It’s a smart way to save for future medical needs while getting tax benefits. You can also earn interest or invest the funds, and any unused money rolls and accumulates year after year, helping you save for future healthcare needs.
How it works
Enroll in a high deductible health plan eligible for a Health Savings Account (HSA). HealthSource RI offers a variety of these plans, which you’ll find listed below in the FAQ section.
Open and activate an HSA with an IRS-qualified trustee. Be sure to find out if your trustee has a minimum balance requirement.
Make contributions to your HSA as you see fit—without exceeding your annual contribution limit. You can also invest your HSA funds in financial opportunities offered through your trustee.
Use your trustee’s preferred payment method—such as a debit card and/or checks—to pay for qualified medical expenses. Save all your receipts and complete the necessary tax forms to claim your deductions (IRS Form 8889).
Why do I need a Health Savings Account? What are the benefits of an HSA?
HSAs offer a smart way to save for current and future medical needs while getting tax benefits.
- No federal income tax. You aren’t taxed on money you put into it, or on the interest you earn, in an HSA account. You also don’t pay tax on withdrawals for qualified medical expenses.
- No expiration date on funds. Your HSA contributions don’t expire. The money stays in the HSA until you use it and roll over year to year.
- Possible use for spouse and dependents. You can use your HSA to pay for qualified medical expenses for your spouse and dependents, even if your HSA-eligible plan doesn’t cover them.
- HSA doesn’t go away if job changes. You can keep your HSA, even if you change employers or retire.
Frequently Asked Questions
HSA Basics
What is a high deductible health plan?
A High Deductible Health Plan (HDHP), also called an HSA-eligible plan, is a type of health insurance plan that has a higher deductible (the amount you pay before insurance helps) than typical plans. This means you have to pay more out-of-pocket for your medical expenses before the insurance starts to pay for medical expenses. However, HDHPs usually have lower monthly premiums, making them more affordable upfront. If you choose this type of plan, you will be eligible to open an HSA.
How can High Deductible Health Plans and Health Savings Accounts lower your health care costs?
If you combine your HSA-eligible plan with an HSA, you can pay that deductible and other qualified medical expenses, like copayments, coinsurance, and more, using money you set aside in your tax-free HSA.
- So, if you have an HSA-eligible plan and don’t need many health care items and services, you may benefit from the lower monthly premium.
- If you need more care, you’ll save by using the tax-free money in your HSA to pay for it.
What are some other benefits of Health Savings Accounts?
You can claim a tax deduction for any contributions you or someone other than your employer makes to your Health Savings Account (HSA):
- HSA contributions made by an employer can be excluded from your gross income
- HSA contributions remain in your account until they are used, and roll over year to year
- HSA funds can be invested, and any interest or other earnings on your investments are tax-free
- Distributions for qualified medical expenses are tax-free
Your HSA is “portable,” and stays with you even if you change employers or retire.
Are there any disadvantages of opening a Health Savings Account?
Health Savings Accounts have many benefits, but they may not be right for everyone. People enrolled in a high deductible health plan are generally required to pay the full cost of their medical expenses until they meet their deductible, which can be a significant out-of-pocket expense.
Which HealthSource RI options count as high deductible health plans?
HealthSource RI currently offers the following high deductible health plans. Enrollees in any of these plans are eligible to open a Health Savings Account.
Individual Plans
BlueSolutions for HSA Direct 1500/3000
BlueSolutions for HSA Direct 2600/5200
BlueSolutions for HSA Direct 5000/10000
Neighborhood COMMUNITY
Neighborhood SECURE
UnitedHealthcare Gold Compass HSA $1,300
UnitedHealthcare Silver Compass HSA $2,000
UnitedHealthcare Bronze Compass HSA $5,500
Who is eligible to open a Health Savings Account?
Anyone is eligible to open a Health Savings Account (HSA), including individuals, employees, and employers, provided they are:
- Covered by a high deductible health plan
- Not covered by another health plan
- Not claimed as a dependent on another person’s tax return
- Not eligible for Medicare benefits
Can my spouse and I both have Health Savings Accounts?
How much money can I contribute to my Health Savings Account?
For 2015, the annual IRS contribution limits are $3,350 (individual) and $6,650 (family). Individuals 55 years or older can contribute an additional $1,000 “catch-up contribution” every year. These contribution limits may be increased in the future to account for inflation.
Your Health Savings Account (HSA) trustee may have a minimum—but substantial—balance requirement. So it’s always important to know the specific terms of your HSA by working directly with your trustee.
Where can I find more information about Health Savings Accounts?
Additional HSA Resources
Please see the following documents from the Internal Revenue Service:
- Publication 502: Medical and Dental Expenses (Including the Health Coverage Tax Credit), for use in preparing 2012 returns
- Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans, for use in preparing 2012 returns
- Notice 2013-57 Preventive Health Services Required under Public Health Service Act Section 2713 and Preventive Care for Purposes of Health Savings Accounts
- Notice 2008-59 Health Savings Accounts
- Notice 2004-50 Health Savings Accounts—Additional Qs&As
- Notice 2004-23 Health Savings Accounts—Preventive Care
Opening and Managing an HSA
Where can I open a Health Savings Account?
You can open an account with an HSA trustee, which is a bank or financial institution that manages your HSA, such a bank, credit union, insurance company, or brokerage firm.
To find the right HSA trustee for you, you can:
- Research HSA providers online.
- Check with your health insurance company to see if they partner with HSA financial institutions.
- Ask your bank if they offer an HSA option that meets your needs.
Are there any Health Savings Account management fees?
There may be fees associated with your Health Savings Account (HSA), including set-up, monthly maintenance, ATM, and overdraft fees. Please refer to your HSA trustee if you have any questions.
Do I need permission or authorization from the IRS to open a Health Savings Account?
No. IRS authorization or permission is not required.
Can anyone else besides my employer and me make contributions to my Health Savings Account?
Yes, any other person—such as a spouse or parent—can make contributions on your behalf. However, their contributions will count towards your annual contribution limit.
Can my employer contribute to my Health Savings Account?
Yes, your employer can make pre-tax contributions to your Health Savings Account (HSA), though they are not required to do so.
Your employer is allowed to fully fund your HSA up to the annual contribution limit. However, you will always “own” your HSA, and your employer will never have control over the account. You don’t need your employer’s approval to spend your HSA funds or manage your account.
Using and Spending HSA Funds
Which medical expenses can I pay for with my Health Savings Account?
You can use your HSA for a wide range of qualified medical expenses, which include expenses for health care services, prescription medications, deductibles, co-insurance, and co-payments. Some examples include:
- Ambulance services
- Acupuncture and chiropractic services
- Dental and vision care (including glasses, contact lenses, and braces)
- Diagnostic devices
- Crutches
- Hearing aids
- Hospital services
- Medical visits
- Mental health services
- Over-the-counter medicines
- Prescription medications
Can I withdraw Health Savings Account funds for non-medical expenses?
Yes, but your withdrawal will be taxed at your income tax rate—and you may face an additional 20% tax penalty, as well as potential administrative fees imposed by your Health Savings Account (HSA) trustee.
Once you turn 65, there is no penalty for withdrawing your HSA funds. However, any funds used for non-medical expenses will still be taxed at your income tax rate.
Can I use my Health Savings Account funds for dependents not covered by my health insurance plan?
Usually, yes. You can typically use your Health Savings Account funds to pay for your spouse’s or your dependents’ qualified medical expenses—regardless of whether those individuals are covered under your high deductible health plan.
Can I use my Health Savings Account funds to pay for health insurance premiums?
Generally, you can’t use your HSA for health insurance premiums. However, there are a few instances when HSA funds can be used to pay for the following premiums:
- Qualified long-term care insurance
- COBRA healthcare continuation coverage
- Healthcare coverage while an individual is receiving unemployment compensation
For individuals 65 or older, there are additional instances when HSA funds can be used to pay for the following premiums:
- Medicare Parts A, B, D, and Medicare HMA
- Employee portion paid for employer-sponsored health insurance
- Employee portion paid for employer-sponsored retiree health insurance
How do I spend my Health Savings Account funds?
Your Health Savings Account (HSA) trustee will likely give you a debit card and/or checks so you can withdraw your HSA funds for qualified medical expenses. While you don’t need to submit any receipts to your HSA trustee, it’s a good idea to save your bills and receipts for tax purposes.
Your trustee may also have an online portal or customer service phone line that allows you to check your HSA balance, make contributions, and perform other account management services.
Changes in Health Plan or Employment
What happens to my Health Savings Account if I lose my job?
What happens to my Health Savings Account funds if I switch health plans and am no longer enrolled in a high deductible health plan?
If you switch health plans and are no longer enrolled in a high deductible health plan, you will no longer be able to make contributions to your Health Savings Account (HSA). However, your HSA will still exist, and you can still withdraw your HSA funds for qualified medical expenses.
If you enroll in a different high deductible health plan, your HSA will not be affected, and you can continue using it as you have. In addition, you always have the option to roll your HSA funds over into a different HSA.
What happens to my Health Savings Account funds at the end of the year if I don’t spend them?
Any unused funds will accumulate and roll over year to year.
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