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FAQ's - Health Savings Account

What is a Health Savings Account (HSA)?

What is commonly referred to as an HSA actually has two components: a qualified High Deductible Health Plan (HDHP) and a Health Savings Account. HSA’s allow you to pay for qualified medical expenses on a pre-tax basis. You can be insured by an HDHP without establishing an HSA, but you cannot have an HSA unless you have an HDHP.

How does a Health Savings Account Work?

Once you are insured by an HSA-Compatible HDHP, you can establish a Health Savings Account. You deposit funds into an HSA to pay for qualified medical expenses (cover your deductible, prescription drugs, etc.) Any funds in your HSA that are unused at the end of the year remain in your account and continue to earn interest to cover future medical expenses. Like an IRA, if you withdraw funds to cover non-medical expenses, those funds are taxed as normal income and are subject to a penalty if taken before you turn 65 years old.

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What does HSA-Compatible Mean?

Guidelines for HSA-Compatible plans are established by the IRS and are subject to change annually. For 2012, the minimum deductible is $1,200 for an individual and $2,400 for a family. The maximum out-of-pocket (including deductible) is $6,050 for an individual and $12,000 for a family. Other benefits are mandated (i.e., doctor office visit co-pays are not allowed) which makes comparing HSA-compatible plans a bit easier. When getting a quote on our site, the qualified plans will be identified as HSA-Compatible.

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What is the Benefit of an HSA?

You may be able to save money when selecting an HSA plan – the monthly premium is generally lower due to the higher deductibles, you have the ability to deduct 100% of the contributions you make to your HSA, and you will earn tax-free interest on your HSA funds.

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How Do The Tax Savings Work?

HSAs make it easy to save on your taxes. You will receive a statement showing the amount you contributed to your HSA. Subject to the maximum allowable contribution, your deduction is “above-the-line” and thus can be taken even if you do not itemize. Of course you should check with your accountant or tax advisor for the specific federal and state tax benefits that apply to you.

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How Much Can I contribute to an HSA?

The allowable contributions to your HSA change annually, and in 2012  the maximum contribution is $3,100 for individual coverage and $6,250 for family coverage. In 2013 the maximum individual contribution is $3,250 and the family is $6,450. If you are between the ages of 55 and 65, you are allowed to make an additional annual “catch-up” contribution of $1,000. You can make contributions in a lump sum or periodically. Just be sure to look for any minimum deposit or balance requirements where your HSA is held.

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Where Do I Set Up an HSA Account?

Funds that you deposit in an HSA Account are held in a trust that is typically administered by a bank, insurance company, or other approved Trustee. Many people go to their local bank. Typically an HSA Administrator gives you a choice of an interest bearing account, CD’s, money market funds, or mutual funds. You make the choice of investment given your tolerance for risk and whether the funds will be FDIC insured.

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How Do I Access my HSA Funds?

Generally you will be provided with a checkbook or debit card to use when paying for your qualified medical expenses. It is best to wait until a claim is processed through the insurance company so that any network discounts are applied before you make payment. It is your sole responsibility to be certain that you are not exceeding the allowable contribution and that you are only paying for qualified medical expenses. You should keep your receipts in case your tax return is audited.

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How Do I Know What a Qualified Medical Expense Is?

Your HSA can be used to pay for the routine medical expenses such as those applied to your deductible or prescription drugs, but it can also be used to cover dental, vision, and over-the-counter drugs. You can even pay for medical expenses of a condition that is excluded from your health plan, such as mental/nervous conditions. For a complete list of qualified expenses, refer to IRS Publication 502. (http://www.irs.gov/publications/p502/index.html)

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What Happens To My HSA Funds I Don’t Use?

Any funds you don’t use remain in your account and continue to generate tax-free interest. Your account can be used to pay for qualified medical expenses tax-free even if you no longer have a qualified medical plan. There is no time limit on using your funds. Once you turn 65, you can also use your account to pay for other medical expenses; these funds will be taxable as income, but will not be subject to any other penalties. You cannot, however, make additional contributions to your HSA once you are enrolled in Medicare or no longer have an HSA-compatible health plan.

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