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Health Savings Accounts
Frequently Asked Questions
What is a Health Savings Account ( HSA )?
An HSA is a tax-favored savings account that allows funds to be accumulated tax-free to pay for current and future qualified healthcare expenses. HSAs were made possible by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
Who can establish an HSA ?
Most people with a qualified high deductible health insurance plan may establish an HSA . To be eligible, an individual must also:
1) not be covered under a health plan that does not have a high deductible*;
2) not be entitled to benefits under Medicare; and
3) not be claimed as a dependent on another person's tax return. An HSA is established with an HSA trustee or custodian (usually an insurance company or bank (much the same way that IRAs are established).
* Exceptions to this rule are "permitted insurance exceptions." The permitted exceptions are: Worker's Compensation, Tort Liabilities, Property and Casualty, Insurance for Specific Disease or Illness or Insurance that pays a fixed amount per day of hospitalization.
What is a high deductible health plan (HDHP)?
Generally, a high deductible health plan satisfies certain requirements with respect to deductibles and out-of-pocket expenses.
Individuals, employers and their employees.
Can the employer and employee make contributions to the HSA at the same time?
Yes, federal regulations allow for both the employer and the employee to make HSA contributions to an account in any one tax year.
How is money contributed to the HSA?
Contributions may be made in one lump sum or in regular installments by the employer, the employee or both.
How much can be contributed to an HSA?
What happens if more money is contributed than allowed?
To avoid a tax penalty, a refund of excess contributions plus interest must be requested through the HSA administrator. These excess funds must be taken out of the HSA by the date taxes are due or by April 15th of the following year, whichever comes first. It is the responsibility of the accountholder to not exceed the maximum allowed.
What happens if the accountholder or employer forgets to make an HSA contribution?
Contributions can be posted to the HSA any time before April 15th or when taxes are posted the following year.
What happens to the HSA balance at the end of the year?
Unspent HSA funds roll over each year and belong to the accountholder. There is no "use it or lose it" provision with HSAs. These funds can continue to be used for qualified medical expenses, along with any new contributions.
What is the tax treatment of HSA contributions?
Are rollover contributions to HSAs permitted?
Rollover contributions from a Medical Savings Account (MSA) and other HSAs are permitted. Rollover contributions need not be in cash. Rollovers are not subject to the annual contribution limits. Rollovers from an IRA, a Health Reimbursement Arrangement (HRA), or a Flexible Spending Account (FSA) are not permitted. State specific rules may also apply, please see your tax advisor for more information.
If the account is funded monthly and I incur an expense, which exceeds the amount currently in the account, can I withdraw the full amount of the expense like with a Flexible Spending Account?
No, the maximum you can withdraw is the amount currently in the account. After additional deposits are made to the HSA, you may then make more withdrawals to reimburse yourself or pay the balance of the bill.
Are HSA accumulations tax-free or tax-deferred?
HSA accumulations are tax-free if used to pay for qualified medical expenses. Accumulations are tax deferred if they are held in the account until the age of 65 and then used for purposes other than qualified medical expenses.
If I have an HDHP with family coverage, but my spouse is not covered under that plan or other family coverage, can I still contribute to the family maximum under the my plan?
Yes, if the spouse files a joint tax return or agrees to aggregate their contribution maximums that way. Otherwise, the accountholder's contribution maximum will be one-half of the family maximum under the employee's plan.
If my family is not covered under my qualified HDHP, can I still use my HSA account to pay their qualified expenses?
Yes, the accountholder may use HSA funds to pay the qualified expenses of the dependents listed (claimed) on income taxes.
What can HSA funds be used for?
Funds can be withdrawn for any purpose. However, if not withdrawn for qualified medical expenses by someone under age 65, the amount withdrawn is taxable and subject to a 10% penalty by the IRS. After age 65, there is no penalty for non-qualified withdrawals but amounts are taxable at ordinary income rates. Funds used to pay for the following are tax-free and penalty-free:
Are health insurance premiums considered qualified medical expenses?
The following types of insurance premiums count as qualified medical expenses under an HSA:
* Medicare is a federal Health Insurance Program for people 65 years of age and older, some disabled people under 65 years of age, and people with End-Stage Renal Disease (permanent kidney failure treated with dialysis or a transplant). A Medicare Supplement policy is a health insurance policy sold by private insurance companies to fill "gaps" in original Medical Plan coverage.
Are HSA withdrawals monitored to make sure they are for qualified medical expenses?
No, the accountholder is responsible for determining if withdrawals are for qualified medical expenses. If the IRS questions any withdrawals, it is the sole responsibility of the accountholder to prove expenditures were for qualified medical expenses. You can track all of your qualified medical expenses online, avoiding any potential tax problems. We provide the ability to enter those expenses that won't automatically be listed online, like eyeglasses and weight-loss programs. Accountholders have the capability of entering claims for reimbursement of qualified medical expenses directly into the HSATool website through their account. Directly entered claims can then be monitored online to determine payment status. The Direct Entry feature is available in addition to the online feature allowing the accountholder to select HDHP-processed claims with outstanding member liability balances for payment.
How are disbursements from an HSA taxed?
HSA disbursements used to pay for qualified medical expenses of the accountholder (or spouse/ dependents) are not taxed. Any amount of the disbursements not used to pay for qualified medical expenses is subject to ordinary tax plus an additional 10% penalty. This penalty does not apply in the case of distributions made after the accountholder's death, disability, or attaining age 65.
How are disbursements taxed if I am no longer eligible for an HSA?
If the accountholder is no longer eligible for an HSA (e.g., he/she is over age 65 and entitled to Medicare benefits, or no longer has a high deductible health plan), distributions used to pay for qualified medical expenses are still tax-free. If distributions are used to pay for items other than qualified medical expenses, then they are taxed as ordinary income (and subject to the 10% penalty).
How can I access my HSA funds?
Assurant Health offers two easy ways to access HSA funds:
1. Debit Card: The free HSA VISA debit card can be used to conveniently pay for prescription drugs at point of service and for other medical expenses that will not be discounted by the PPO network. The card is valid wherever VISA is accepted. Claim forms are not needed and there are no transaction fees.
2. Checkbook: Accountholders receive free start-up checks to pay for medical expenses directly from their HSA. Claim forms are not needed and there are no transaction fees. Additional checks can be obtained for a small fee.
For medical expenses incurred at a PPO provider, accountholders should wait to receive their Explanation of Benefits statement, which may include PPO provider discounts that can save them money.
Can the debit card be used for other purchases or to obtain cash?
The card is intended to be used solely for qualified medical expenses (as defined above). The card will not work for cash withdrawals at ATM locations. If the IRS questions any withdrawals, it is the responsibility of the accountholder to justify expenditures as qualified medical expenses. We strongly encourage all HSA accountholders to keep receipts and diligent transaction records.
Do HSA accountholders receive statements?
Yes, monthly statements including contributions and disbursements are sent to the accountholders. Statements also include debit card transactions with purchase amount and place of purchase. These statements are also available for viewing online by selecting the Health Savings Account on the HSA Summary Page.
If I change from single to family coverage or vice versa, or have another life event change, how is the HSA affected?
If the HSA plan is affected by a change in policy status, the amount available to fund in the HSA will change as well. View online the HSA Savings Illustrator to better reflect how this change impacts you and your maximum allowable amount.
Does Assurant Health allow clients/individuals to invest their HSA funds using their own Custodian?
No, this is not feasible since reporting links have to be set up with the custodian to transfer money.
Is there a minimum amount required to open an HSA?
Assurant Health does not require a minimum amount to open an HSA.
What happens to the HSA if the health plan changes?
Even if the health plan is no longer a qualified high deductible health plan, accountholders can still withdraw previously contributed HSA money to pay for qualified medical expenses, or continue to let the funds grow tax-deferred. Accountholders cannot, however, make contributions to the HSA unless an HSA-qualified insurance plan is in place.
What are the income tax consequences after the HSA accountholder's death?
Upon death, any balance remaining in the HSA becomes the property of a beneficiary named in the HSA paperwork. If the beneficiary is the surviving spouse, distributions not used for qualified medical expenses are subject to ordinary income tax. If the beneficiary is a person other than the surviving spouse, the HSA ceases to be an HSA as of the date of the accountholder's death, and the beneficiary is required to include in gross income the fair market value of the HSA assets as of the date of death. This amount is reduced by any payments from the HSA made for the accountholder's qualified medical expenses, if paid within one year after death.
What reporting is required for an HSA?
Employer contributions to an HSA must be reported on the employee's Form W-2. The IRS will release forms and instructions, similar to those required for MSAs, on how to report HSA contributions, deductions, and distributions (withdrawals).
What are the federal tax advantages of an HSA?
HSA contributions are tax deductible and withdrawals used for qualified medical expenses are not subject to tax or penalty. In addition, interest earned on HSA savings is tax-free if used to pay for qualified medical expenses. State advantages will vary by state. Please see your tax advisor for additional information.
Can HSA deductibles and out-of-pocket limits change?
Yes, HSA deductibles, annual out-of-pocket maximums and annual contributions can change annually based upon changes in the Consumer Price Index (CPI) issued by the Department of Labor.
How can an employer afford to make HSA contributions for employees?
Because HSAs must be coupled with a high deductible health plan, the health insurance premiums can be substantially lower. Employers often find that these premium savings are large enough to cover the HSA contributions they make on behalf of their employees, without increasing their current outlay for health care benefits.
If the employer gives employees a bonus, can this amount be put into the HSA?
Bonuses may be given and employees can choose to deposit some or all the amount into their HSA (as long as the maximum annual contribution is not exceeded).
Can the amount of employer funding vary based on classes of employees?
No, there are comparability rules that must be followed when funding the HSA. In general, the employer must make available comparable contributions on behalf of all employees with comparable coverage during the same period. Contributions are considered comparable if they are either the same amount or the same percentage of the deductible under the plan.
Can employees contribute directly to their account with a check?
It depends on how the HSA is set up. If the HSA is offered through a cafeteria plan, contributions will be made by the plan administrator. If the HSA is not set up with a cafeteria plan, an employee may make contributions with a check.
What happens if a claim is incurred after the employee's policy add-on date, but prior to the HSA effective date?
For contribution purposes, the HSA is effective the first of the month following an employee add-on to an HSA plan. Qualified medical expenses will be reimbursed from the HSA retroactive to the date the employee was added to the HSA plan.
Example: An employee who is added to the policy on 2/15 can begin contributing to the HSA on 3/1, but will still be reimbursed for services rendered on 2/20.
What happens to the HSA balance if the employee leaves the company?
The HSA belongs to the employee. Therefore, unspent HSA funds remain with the individual. Accountholders can still use their HSA money to pay for qualified medical expenses, or continue to let it grow tax-deferred. Accountholders cannot, however, contribute to the HSA unless an HSA qualified insurance plan is in place.
Is an HSA allowed for those small business owners who are not eligible for an HRA?
Yes, an employer can set up an HSA for him/herself and an HRA for employees.
Why does Assurant Health recommend using a different administrator for HRAs and HSAs?
HRAs may require claims adjudication while HSAs do not. Employee Benefits Corporation (EBC) specializes in administering FSAs and HRAs, both of which require claim adjudication, but they do not administer HSAs. HSAs do not require claims adjudication but require banking arrangements so that funds may collect interest and in the future, have investment options available.
What employer discrimination rules apply to HSAs?
If an employer makes HSA contributions, the employer must make available comparable contributions on behalf of all "comparable participating employees" (i.e., eligible employees with comparable coverage) during the same period. Contributions are considered comparable if they are either the same amount or same percentage of the deductible under the high deductible health plan.
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