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What is a Health Savings Account (HSA)?
A Health Savings Account (HSA) is an individually owned tax exempt trust account that you own and can put money into to pay for current and future medical expenses. There are certain advantages to depositing money into these accounts, including favorable tax treatment.
Who can have a HSA?
Any adult can contribute to an HSA if they:
- Have coverage under an HSA-qualified “high deductible health plan” (HDHP).
- Have no other first-dollar medical coverage. This includes but is not limited to other non-HDHP coverage, general purpose Health Care Flexible Spending Accounts or Health Reimbursement Arrangements. (Other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long-term care insurance are permitted).
- Are not enrolled in Medicare or Tricare.
- Cannot be claimed as a dependent on someone else’s tax return.
What is a High Deductible Health Plan (HDHP)?
You must have coverage under an HSA-qualified HDHP to open and contribute to an HSA. Generally, this is health insurance that does not cover first dollar medical expenses. The HDHP cannot pay any benefits until a person has incurred minimum deductible amounts. Federal law requires that the health insurance deductibles are:
- $1,500 - Self-only coverage (for calendar year 2023)
- $3,000 - Family coverage (for calendar year 2023)
In addition, annual out-of-pocket expenses under the plan (including deductibles, co-pays and co-insurance) cannot exceed:
- $7,500 -- Self-only coverage (for calendar year 2023)
- $15,000 -- Family coverage (for calendar year 2023)
The deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for “preventive care” services on a first-dollar basis (with or without a co-pay). "Preventive care" can include routine pre-natal and well-child care, child and adult immunizations, annual physicals, mammograms, etc.
How much can I contribute to a HSA?
Contributions to your HSA can be made by you, your employer or both. The total contributions are limited annually. If you make a contribution, you can deduct the contributions (even if you do not itemize deductions) when completing your federal income tax return. Contributions to the account must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it to pay for medical expenses tax-free.
You can make contributions to your HSA every year that you are eligible. The contributions cannot exceed:
- $3,850 Self-only coverage (for calendar year 2023)
- $7,750-- Family coverage (for calendar year 2023)
Banks, credit unions, insurance companies and other financial institutions are permitted to be trustees of these accounts.
Catch-Up Contributions—Individuals age 55 and older can also make additional “catch-up” contributions. The maximum annual catch-up contribution is $1,000.
What expenses qualify under a HSA?
You can use the money in the account to pay for any “qualified medical expense” permitted under federal tax law. This includes most medical care and services, and dental and vision care. It also includes over-the-counter (OTC) drugs such as cold and flu medications, muscle relaxants, pain relievers, smoking cessation items, cough suppressants and acid reflux medications.
You generally cannot use the money to pay for medical insurance premiums, except under specific circumstances.
You can use the money in the account tax free to pay for health care expenses for yourself, your spouse and your dependent children. You can pay for expenses for your spouse and dependent children even if they are not covered by your HDHP. Any amounts used for purposes other than to pay for “qualified medical expenses” are taxable as income and subject to an additional 20% Federal tax penalty (and possible State penalty).
After you turn age 65, the 20% additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional 20% penalty.
What expenses don’t qualify under a HSA?
Examples of non-qualified expenses include cosmetic surgery and vitamins and supplements for general health.
If I have a HSA can I still contribute to a FSA?
Individuals with HSAs can contribute to a Limited Purpose Flexible Spending Account (LPFSA). A LPFSA is a flexible spending account that allows you to be reimbursed tax-free for dental and vision expenses.
What are the advantages of HSAs?
- Security – Your high deductible insurance and HSA protect you against high or unexpected medical bills.
- Affordability – Premiums for HDHP coverage are generally more affordable than premiums for traditional health coverage.
- Flexibility – You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs, such as:
- Health insurance or medical expenses if unemployed
- Medical expenses after retirement
- Out-of-pocket expenses when covered by Medicare
- Long-term care expenses and insurance premiums
- Savings – You can save the money in your account for future medical expenses and grow your account through investment earnings.
- Control – You make the decisions about:
- How much money to put into the account
- Whether to save the account for future expenses or pay current medical expenses
- Which medical expenses to pay from the account
- Whether to invest any of the money in the account
- Which investments to make
- Portability – Accounts are completely portable, meaning employees can keep their HSA even if they:
- Change jobs
- Change medical coverage
- Become unemployed
- Move to another state
- Change marital status
- Ownership – Funds remain in the account from year to year, just like an IRA. There are no “use or lose” rules for HSAs.
- Tax Savings – An HSA provides you triple tax savings:
- tax deductions when you contribute to your account or pre-tax deductions via payroll;
- tax-free earnings through investment; and,
- tax-free withdrawals for qualified medical expenses.
How can I view my account information?
Once you are enrolled in the HSA, you have access to your account information through the DBS online account viewing system known as A.S.A.P.®, which allows you to securely view your balance and reimbursement information.
The Internal Revenue Service has a web site with additional information about Health Savings Accounts, including answers to frequently asked questions, related IRS forms and publications, technical guidance, and links to other helpful web sites. The website is www.irs.gov
Review eligible expense lists for Health Savings Accounts.
The following is a list of expenses that potentially qualify under a Section 223-Health Savings Account
- Abdominal, arch and back supports
- Alcoholism treatment
- Allergy medications
- Ambulance expenses
- Artificial limbs
- Birth control pills and other contraceptive devices
- Blood tests and transfusions
- Braces/orthodontia expenses
- Braille books & magazines
- Breast pump and supplies
- Breast Reconstruction Surgery (following mastectomy for cancer)
- Chiropractor fees
- Christian Science Practitioner
- Co-insurance expenses
- Contact lenses, contact lense solutions and enzyme cleaners
- Co-pays (for office visits, prescription drugs, urgent care, etc.)
- Deductible expenses under a medical plan
- Dental Fees such as x-rays, cleanings, exams, crowns
- Diagnostic fees
- Diabetic supplies and insulin treatments
- Drug addiction treatments (medical expense amounts you pay for inpatient treatment)
- Elastic hosiery (with letter of medical necessity)
- Eyeglasses & eye surgeries
- Fees paid to health institute prescribed by doctor
- Guide dog and maintenance of guide dog
- Gum treatment
- Gynecologist services
- Hearing aids and batteries
- Heating devices (medically necessary)
- Hospital services
- Hydrotherapy (medically necessary)
- Invalid chair
- Lab tests and fees
- Legal fees (required to authorize health treatment)
- Lodging (away from home for outpatient care)
- Long term care services
- Menstrual care products
- Metabolism tests
- Neurologist fees
- Nursing home and services (including board and meals)
- Obstetrician services
- Operating room costs
- Ophthalmologist services
- Optician services
- Optometrist fees
- Oral surgery
- Organ transplant (including donor’s expenses)
- Orthopedist fees and orthopedic shoes
- Osteopath fees
- Over-the-Counter (OTC) medicines
- Oxygen and oxygen equipment
- Pediatrician services
- Physician services
- Physiotherapist services
- Podiatrist services
- Postnatal treatments
- Practical nurse for medical services
- Premiums for continuation coverage (COBRA or USERRA)
- Premiums for Medicare Part A, B,C,&D(if65orolder)
- Prenatal care
- Prescription medicines
- Psychiatrist fees
- Psychoanalyst, Psychologist, Psychotherapy services
- Qualified Long Term Care contract
- Radium therapy
- Saline Solution for contact lenses
- Sickroom supplies
- Smoking cessation programs (by prescription only)
- Special auto equipment for the handicapped
- Spinal fluid tests
- Surgeon and surgery fees
- Telephone/TV for hearing impaired
- Therapy equipment
- Transportation expenses (relative to health care)
- Tuition for child with learning disability
- Ultra-violet ray treatment
- Vasectomy services
- Weight loss programs fee (with approved letter of medical necessity from physician)
- Whirlpool bath (by prescription)
Special Circumstance Expenses
- Capitol Expenses (for special equipment installed in a home, or for improvements, if for medical purposes)
- Lead paint removal
- Air conditioner (when medically necessary for breathing)
- Registered nurses fees
- Exercise equipment (by prescription)
- Long term care insurance premiums
Examples of Non-Qualifying Medical Expenses
- Advance payment for services rendered in the next year
- Athletic club memberships
- Cosmetic surgery
- Diaper service
- Funeral, cremation or burial expenses
- Marriage counseling
- Maternity clothes
- Medicare supplement premiums
- Swimming pool
- Vitamins and dietary supplements for general health