Health Savings Accounts
The following are key facts about HSAs. For more information, please read the complete list of Frequently Asked Questions (FAQs).
What is an HSA?
Think of HSAs as “medical” IRAs. They are tax-free accounts that individuals with an HSA-compatible high-deductible insurance policy can fund and use to pay for medical expenses. Because they are tax-advantaged and balances can accumulate over time, HSAs can also be used to accumulate wealth. In addition, HSAs are owned by the individual account holder and therefore portable.
Since inception in January 2004, HSAs are quickly gaining in popularity among individuals and employers. Key facts from several recent studies indicate strong interest:
- Of employers surveyed, 73% said they were very or somewhat likely to offer HSAs by 2006. ∼ Mercer Human Resource Consulting
- Among these employers, 21% said employees are inquiring about HSAs. Among larger employers, 42% of employees expressed interest. ∼ Mercer Human Resource Consulting
- Among small business owners, 73% found the concept of HSAs appealing. ∼ National Small Business Association
- HSAs appeal to all income groups. A study by e-Health Insurance shows nearly 50% of HSA purchasers make less than $50,000. ∼ e-Health Insurance
Who is eligible for an HSA?
To be eligible
for an HSA, the subscriber must be covered
only by an HSA compatible, high deductible health plan and
must not be a dependent on another person's tax return.
For a listing of HSA compliant plans in your area,
Search for a High Dedeductible Health Plan.
Individuals age 65 and older are eligible to open an HSA as
long as they have not elected Medicare,
A high deductible health insurance plan is one with an annual deductible of at least:
- $1,100 for individuals
- $2,200 for families
- In 2007, annual out-of-pocket expenses cannot exceed
- $5,500 for individuals
- $11,000 for families
Who can contribute & how much is allowed?
Individuals and employers can contribute to HSAs. The maximum annual contribution is the lesser of the annual deductible amount of the high deductible health plan and the federal maximum contribution amount for 2007: $2,850.00 for individuals and $5,650.00 for families.
What are the investment options with an HSA?
HSA account holders can invest contributions in passbook savings, money market funds, mutual funds, stocks and bonds.
How can funds be used?
HSA funds can be used to pay for a variety of health care services, including many that are not traditionally allowed under other plans (examples: dental and vision care services, long term care insurance premiums and medical insurance premiums during periods of unemployement).
For a complete list, see our FAQ section on how distributions from HSAs can be used or visit the Internal Revenue Service's Publication 502 (2004), Medical and Dental Expenses.