What is an HSA?

An HSA or Health Savings Account is a bank account that you open at a financial institution in your name with your money. Like any other account money only comes out and goes in to the account per your instructions. In order to open and contribute to a Health Savings Account you have to meet the following eligibility requirements set by the IRS.

Eligibility to Make Contributions to HSA
In order to be eligible to make contributions to an HSA, an individual must meet the following requirements:

1. He or she must be covered under a high deductible health plan (HDHP defined below),
2. He or she cannot have any other health coverage except as permitted (see below),
3. He or she cannot be claimed as a dependent on another person’s tax return, and
4. He or she must be an eligible on the first day of the month to take an HSA deduction for that month. 

IRS FORM 8889 – Health Savings Account
This worksheet is used to report information and make calculations concerning the taxpayer’s Health Savings Account, including the following:

• Report health savings account (HSA) contributions including those made on the taxpayer’s behalf and employer contributions,
• Calculate the taxpayer’s HSA deduction,
• Report distributions from the taxpayer’s HSA, and
• Calculate the amount of contribution or distributions that is taxable and subject to an additional tax.  

HSA’s give you more control over how your healthcare dollars are spent. A higher deductible means that you will be paying for more of your medical expenses out of your own pocket. It also means that you will be paying a lower premium.

What are the Advantages and Disadvantages of an HSA?

Advantages

• Low Premium
• Comprehensive Insurance
• Great Tax Benefits
• Network prices for Medical Care

  Disadvantages

• High Deductible means you’ll pay more when the time comes.

What is a Qualified High Deductible Health Plan?

HDHP
This is a health insurance plan that meets the following limits in 2011:

Contributions to an HSA
For 2011, the annual contribution and deduction limit is $3,050 if the taxpayer has a high deductible health plan with self-only coverage, or $6,150 if the taxpayer has family coverage. If the taxpayer is age 55 or older at the end of 2011, their additional allowable contribution amount is $1,000. A taxpayer cannot deduct any contributions to an HSA that were made in the same month in which the taxpayer was enrolled in Medicare.

Distributions from an HSA
If distributions from an HSA are used for qualified medical expenses for the account beneficiary, spouse, or dependents, the distributions are excludable from gross income. Any amounts not used for qualified medical expenses are includible in gross income and are subject to an additional 20% tax unless an exception applies.

Qualified Medical Expenses
Qualified medical expenses for HSA purposes are unreimbursed medical expenses that could otherwise be deducted on the Schedule A worksheet with the exception of the list below:

– The taxpayer may not deduct the costs of any non-prescription medicines with the exception of insulin.  

– The taxpayer may not treat insurance premiums as qualified medical expenses unless the premiums are for one of the following:

• Long-term care (LTC) insurance,
• Health care continuation coverage, or
• Health care coverage while receiving unemployment compensation under Federal or state law.
• Medicare and other health care coverage if the taxpayer was 65 or older, however, this does not apply to amounts paid for a Medicare supplemental policy.

NOTE: Distributions from an HAS is normally reported on FORM 1099-SA (Distributions from an HAS, Archer MSA, or Medicare Advantage MSA.