More on Health Savings Accounts (HSAs)
By: Adam Ledbetter, CFP^®
The Henssler Financial Group Position Paper

• HSAs are tax-sheltered medical savings accounts. They operate similar to an IRA.
  
• Contributions are 100% tax deductible for employers, and are also either pre-tax or tax deductible for employees.
  
• The contributions grow tax-deferred until needed. Money withdrawn for qualified medical expenses is tax-free. If withdrawals are not used for qualified medical expenses, then the amount will be taxable as ordinary income and there will be a 10% penalty for those under age 65.
  
• Any individual not eligible for Medicare, not claimed as a dependent, or any size group can open an HSA.
  

• Choose a deductible.
  
  • Minimum of $1,100 for individuals.
    
  • Minimum of $2,200 for families.
    
  • Maximum out of pocket is $5,600 for individuals and $11,200 for families for in-network costs. Out-of-network out of pocket maximums will vary depending on the co-insurance.
    
• Choose the co-insurance amount.
  
  • 100, 80/20, or 50/50 for in-network costs.
    
  • Out-of-network costs could carry a higher co-insurance. For example, if you chose an 80/20 co-insurance plan for in-network costs, this could become 60/40 for out-of-network costs.
    
• Other facts regarding the HDHP.
  
  • The premiums paid could include a 35-50% reduction from what you are currently paying for your traditional plan.
    
  • No co-pay plans with HSAs. You must meet your deductible before any costs are paid by the insurance plan.
    
  • In some cases, discounts are given if in-network for doctor visits, prescription drugs, etc.
    
  • Plans are permanent and portable.

• You can open these accounts with an HSA-qualified trustee or custodian.
  
• Any HSA-qualified insurance company or bank can be an HSA custodian.
  
• You do not have to open the HSA with the same institution that provides your HDHP.
  
• Different institutions offer different options regarding how your contributions will be invested. For instance, some custodians may only offer a cash-only option where your contributions just simply earn interest. Other custodians may allow contributions to be invested in cash, stock, mutual funds, etc. The accounts that offer various investment options could charge an annual fee, so be sure to ask about this before choosing the custodian.

• Limits on the contributions are as follows:
  
  • Maximum contributions are $2,900 for individuals and $5,800 for families.
    
  • There is a catch-up contribution for individuals age 55 and over. This amount is currently $900, increasing annually by $100, until reaching $1,000 in 2009.
    
  • After becoming eligible for Medicare benefits, generally at age 65, you cannot contribute anymore to an HSA.
    
• There is no set contribution requirement so you can fund these annually, monthly, weekly, etc.
  
• The contributions are held in the HSA until needed. You do not have to take the money out if not needed, nor do you lose the un-used funds annually. The account continues to build for retirement if the money is not needed for medical expenses.
  
• You may make contributions through April 15th for the previous tax year.
  
• These contributions can be made through a cafeteria plan for salary deferral.

• You may withdraw funds at any time, keeping in mind that if they are not used for qualified medical expenses, you will pay a penalty if under age 65 and pay ordinary income tax.
  
• After the doctor or pharmacy files a claim with the insurance company, any remaining costs needed to be covered can be paid automatically from the HSA or you can pay the bill yourself and then request the HSA custodian to send you a check for reimbursement. Some custodians offer check writing capability or the use of a debit card to pay for the expense directly from your HSA. Again, there could be a fee for these capabilities, so be sure to ask before setting up the account.
  
• A tax form will be issued annually by your HSA custodian showing all of your distributions. It will be up to the account holder to keep a record of what was used for qualified medical expenses.