What is an HDHP?

An HDHP is a different type of health plan. Under an HDHP individuals are covered for large expenses and pay for their day-to-day expenses, usually up to the amount of the deductible. In order to meet the requirements an HDHP must have a deductible of at least $1,100 for individuals or $2,200 for families plus certain total out-of-pocket expense maximums.

What are the benefits of an HSA

An HSA is very similar to an IRA in that:

• Pre-tax dollars can be used to pay for qualified medical expenses
• You are in control of more of your health care decisions
• Funds left in an HSA can grow, tax deferred
• Your account stays with you even if you change employers
• After age 65 you can withdraw your funds and they are only taxed as ordinary income

What expenses are qualified medical expenses?

Qualified expenses include most normal medical expenses such as:

• Doctor visits
• Prescription and over the counter drugs
• Dental services
• Vision care (including contact lenses, glasses and Lasik surgery)
• View a complete list of qualified medical expenses.

How do I open an HSA?

Opening an HSA is very similar to opening a checking account. All you need to do is complete an Health Insurance Quote Form which asks basic information such as, name, address, date-of-birth, phone number, and e-mail.

You may also want to authorize a co-signer on your HSA. An HSA is an individual account and cannot be held jointly; however, we allow for co-signers. An HSA can be used for the benefit of other eligible members in the family (regardless of their insurance coverage) so it is often beneficial for anyone opening an HSA to allow their spouse to have signing privileges. It generally makes sense to only open one HSA per family rather than split the contribution between two spouses’ accounts.

As a custodial or trust account, you are permitted and encouraged to name a beneficiary for your HSA at the time you open it. At the time of death, a spouse beneficiary will have the option to treat the account as his or her own HSA and continue to use the account as an HSA. A non-spouse beneficiary will not be allowed to keep the assets in an HSA and will have to include the amount in the HSA as income. If you do not name a beneficiary, any balance remaining in your HSA will go to your estate.

How much can I contribute to an HSA?

Individuals are allowed to contribute up to $2,850 in 2007. For individuals the exact calculation is the lesser of:

(1) $2,850
(2) the prorated annual deductible of your health plan

If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year if eligibility, the amount which could not have been contributed will be included in income and subject to a 10 percent additional tax.

Families are eligible to contribute up to $5,650 in 2007. For families the exact calculation is the lesser of:

(1) $5,650
(2) the prorated annual deductible of your health plan

If an individual does not stay in the HSA-eligible plan 12 months following the last month of the year of the first year if eligibility, the amount which could not have been contributed will be included in income and subject to a 10 percent additional tax.

Example: You established a qualified health plan in December 2007 and contributed the maximum allowed.  Then in January 2008 you contributed the maximum contribution for that tax year. Scenario 1:  You maintained coverage through December 31, 2008.  You are eligible for the maximum contribution for both 2007 and 2008. Scenario 2: You ended coverage April 1, 2008.  Eleven-twelfths of the December 2007 contribution must be treated as income, plus a 10% penalty on that amount must be paid.  Nine-twelfths of the funds deposited in January must be taken out of the account as an excess contribution (and treated as income) but no 10% penalty is incurred.

Confused? Don't worry, our HSA Contribution Worksheet walks you through the calculations.

How do I make contributions?

You will generally open your HSA with an initial contribution. This could be a check, an ACH withdrawal from your checking account or a contribution from your employer made payable to the HSA custodian or trustee. You may then want to set up an automatic deposit plan for future contributions. An automatic monthly deposit allows for you to fund your HSA on a regular basis without any hassle. If you prefer, you can make your full annual contribution all at once. Your employer may also make contributions on your behalf or as a benefit to you.

How do HSA's compare to FSA's and Health Reimbursement Arrangement (HRA) Health Savings Accounts:

• Financed with employee pre-tax dollars and/or employer contributions
• Distributions for qualified medical expenses are tax free (employees required to substantiate)
• Account balance belongs to employee and rolls-over from year to year
• Amount withdrawn after age 65 taxable as ordinary income

Flexible Spending Accounts

• Financed with employee pre-tax dollars
• Distributions for qualified medical expenses are tax free (compliance determined at time of payment)
• Account balance does not roll from year to year; use it or lose it

Healthcare Reimbursement Accounts

• Financed with employee pre-tax dollars and/or employer contributions
• Distributions for qualified medical expenses are tax free (compliance determined at time of payment)
• Unused funds may be carried to future years
• HSA FAQ
• Health Savings Accounts Minnesota