Products - Health Savings Accounts

The "Next Frontier" in Consumer-Driven Health Care

Dealing with ever-increasing benefit costs rarely has been easy for employers or employees. Now, more than ever, employers and employees need consumer-driven health plans such as the Health Savings Account (HSA).

An employer sponsoring a qualifying high deductible health plan that uses our services to establish an HSA generally will realize an increase in net revenue through decreased premiums. A greater increase in net revenue will be realized if the employer establishes a Flexible Benefits Plan providing for pre-tax HSA contributions.

Not only will the employer benefit from the establishment of an HSA, but participating employees benefit as well. They receive a valuable tax-free benefit that, when utilized, generally results in increased compensation.

What is an HSA?

An HSA is a federally-approved, consumer driven health care arrangement benefiting both employers and employees. Created in response to ever-rising health care expenses and the vast number of Americans without health insurance coverage, Congress intended the HSA to be both a financial incentive for employers to provide access to lower cost health insurance coverage and also a financial incentive for consumers to pay “first-dollar” health care expenses while making their own health care decisions.

How do HSAs differ from Archer MSAs?

While many of the rules applicable to HSAs are similar to those applicable to MSAs, there are key differences:

• HSAs are available to individuals covered by a high deductible health plan (HDHP).

• An employer may offer HSAs through a cafeteria/Section 125/Flexible Benefits Plan.

• Employer contributions to an HSA offset what an individual may contribute, they do not eliminate the ability to contribute.

• Non-qualifying use of HSA assets are subject to a 10% penalty, rather than 15%.

• HSA qualifying expenses include the purchase of certain health insurance after age 65.

Because the law permits MSA assets to be transferred to HSA accounts, current MSA account holders immediately may take advantage of the more favorable HSA rules.

Why establish an HSA?

HSAs offer the newest avenue through which employers can manage their benefit expenses while providing their employees “freedom of choice” with respect to their health care decisions. With an HSA, employers can: exercise control over premiums; manage ever-increasing benefit costs; reduce tax liability; and, provide a tax-free benefit to employees. With an HSA, employees can: manage insurance premiums; control treatment decisions; experience tax savings; reduce health care expenses; supplement retirement income; carry account balances forward; and, roll account balances over from Medical Savings Accounts or other HSAs.

For a list of HSA Providers and to obtain an HSA Application, please go to the our Partners page.

What are the features of an HSA?

Important features of an HSA include the following:

• When made through a Flexible Benefits Plan, contributions are 100% free from federal taxes (income, FICA, FUTA).

• Interest earned on the account is 100% free from federal income tax.

• Funds used for qualified medical expenses (generally, health care, dental care, vision care and other services not covered under the high deductible health insurance policy) remain 100% free from federal income tax. Funds used for non-medical expenses will be subject to federal income tax, as well as a 10% penalty if used before age 65. Funds used for non-medical expenses after age 65, or if death or disability occur, will be subject to federal income taxes.

• HSA contributions remain the property of the participating employee, rolling forward year-to-year, and are not subject to forfeiture.

• Upon death, HSA assets become the property of the named beneficiary or the account holder’s estate. A spouse may treat the assets as his/her own HSA, while the nonspouse beneficiary must treat it as ordinary taxable income.

What are the key components of an HSA?

The employer-sponsored HSA design consists of the following key components:

• The qualified high deductible health plan. Participating employees must have individual coverage with specific minimum annual deductibles and maximum annual out-of-pocket expenses or family coverage with specific minimum annual deductible and maximum annual out-of-pocket expenses. Generally, the plan may not pay any benefit prior to satisfaction of the annual deductible; however, there are exceptions for preventive care expenses.

• The tax-exempt account. Contributions must be directed to a savings account held by an approved financial institution.

• The Flexible Benefits Plan. The Flexible Benefits Plan provides the vehicle through which salary deferral contributions remain free from federal income tax, FICA and FUTA.

• The participants. Unlike other employer-sponsored health plans, any employee covered by a qualified high deductible health plan who is not entitled to Medicare, who is not participating in another health plan (e.g., a health care flexible spending account or a health reimbursement arrangement) and who may not be claimed as a dependent on another person’s tax return may participate in an HSA. This includes small employer, large employers, partners, sole proprietors, S-corporation owners, LLC members and C-corporation owners.

What are qualified medical expenses?

HSA assets retain their tax-free status only when withdrawn and used for certain expenses, such as:

• Actual medical expenses (e.g., doctor visits, prescriptions, dental care, etc.).

• Long-term care insurance.

• Health care coverage when unemployed.

• Certain continuation-of-benefit health care coverage.

• Certain health insurance after age 65.

Non-qualified uses of HSA assets are subject to taxation. They may also be subject to a 10% penalty unless the account holder is age 65 or older, dies or is disabled. Do HSAs require reporting?

Employer contributions to an HSA must be reported on the employee’s W-2. If it has not done so already, the IRS will issue forms and instructions on how to report HSA contributions, deductions and distributions. What are the HSA contribution rules?

The total amount you or your employer may contribute to an HSA depends on whether you have individual or family coverage under a high deductible health plan. If you have individual coverage, you may contribute $3,000 for 2009 [adjusted annually by the IRS]. If you have family coverage, you may contribute $5,950 for 2009 [adjusted annually by the IRS].

Additionally, if you have attained age 55 before the close of a taxable year, you may also contribute an additional amount known as a "catch-up" contribution. The 2009 catch-up limit is $1,000 [subject to annual adjustment].