What is an HSA?
The rising cost of medical care and the growing number of uninsured individuals in the United States have made health care an area of tremendous national concern. Lawmakers created health savings accounts (HSAs) in 2003 with passage of the Medicare Prescription Drug, Improvement, and Modernization Act. HSAs became available in January 2004.
An HSA is a tax-deferred savings account designed to pay the medical expenses incurred by an HSA owner, his spouse, and dependents. HSA contributions are tax-deductible, and if the funds are used for qualified medical expenses, distributions are tax-free.
Why have HSAs become so popular?
Under the HSA program,
• individuals need not be employed to be HSA-eligible,
• HSA contributions may be made by the HSA owner, an employer, or any other individual, and
• the insurance industry is responding with health insurance products that are HSA-compliant.
Contributions may be deposited by an HSA-eligible individual or by an employer or another person on
behalf of such individual. These contributions are tax-deductible to either the HSA owner or the employer
making the contribution. For 2017, the maximum contribution amount may not exceed $3,400 for eligible
individuals with self-only high deductible health plan (HDHP) coverage or $6,750 for those with family
coverage. For 2018, the maximum contribution amount is $3,450 for individuals with self-only HDHP
coverage or $6,900 for those with family coverage. In addition, eligible individuals who are age 55 or older may make HSA catch-up contributions of up to $1,000 annually.
Under federal tax laws, amounts deposited in the HSA grow tax-free until distributed. The HSA owner will not owe tax on withdrawals if he, his spouse, or his dependents have incurred qualified medical expenses that are not reimbursed by health insurance. Amounts withdrawn from an HSA that are not used to pay for a family’s medical expenses generally are subject to federal income tax and an additional 20 percent penalty tax.
To be considered HSA-compatible, the plan’s deductible must meet an IRS-defined minimum dollar
amount and maximum out-of-pocket expense amount. These amounts are shown in the table below.
Only medical expenses covered by the HDHP are taken into account in determining whether the HDHP deductible has been satisfied.
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If you have questions about HSAs, or want more information, give our membership department a call at 800-248-2328, Option 1.