What is an HSA?
An HSA is a type of consumer driven health care account. HSAs are a relatively new type of health care coverage modeled after Archer MSAs, brought about when President Bush signed in the Medicare Modernization Act in 2003. It’s a type of account that allows individuals to save for qualified medical expenses tax-free.HSAs are open to anyone who is enrolled in a qualified High Deductible Health Plan (HDHP). Account funds are contributed into the account tax-free. Money in the HSA is allowed to accumulate in the account and earn interest. When the account-holder has a qualified medical expense, that person would withdraw the money tax-free for those expenses. Some types of qualified medical expenses the account is used to pay for includes deductibles, co-insurance costs and copays. The money stays in the account from year to year and just keeps rolling over.
HSAs are owned by the individual, not by employers. Any money contributed into the account, whether by employer or employee, is the employee’s to use for their qualified medical expenses.
Who is Eligible for an HSA?
Employers who wish to set up an HSA for their employees must also enroll their employees in a HDHP.To qualify for an HSA, employees
- Must have coverage through an HDHP
- Not have coverage through any other health insurance
- Not have coverage through Medicare
- Cannot be claimed as a dependent on anyone’s tax return
Who is Not Eligible for an HSA?
Employees that have any of the following cannot sign up for an HSA: HSAs under 1st dollar rule.- Medicare
- Tricare
- Flexible Spending Account (FSA)
- Health Reimbursement Account (HRA)
- If the HRA and FSA are used only for vision, dental or preventive care benefits and not for medical benefits, it’s fine to use either alongside an HSA.
- HRAs and FSAs can be used for medical accounts ONLY after the minimum annual deductible has been met for the HDHP.
- An HRA that is set up to fund health care costs after retirement can be used along with an existing HSA.
- If an existing HRA is already established and an employees agrees to forgo health care reimbursements during the period when there’s a contribution to their HSA, both would be allowed to exist at once.