Health Savings Account Questions:
Q. What is a Health Savings Account?
A. An HSA works like an IRA, except that money is used to pay health care costs. Participants enroll in a relatively inexpensive high deductible insurance plan. Then, a tax-deductible savings account is opened to cover current and future medical expenses.
The money deposited, as well as the earnings, is not taxable. The funds can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year.
Q. Who can qualify?
A. Everyone with a qualified high deductible insurance plan is eligible for a tax-deductible HSA (not just those who are self-employed or own small businesses).
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Q. What is the difference between a Medical Savings Account and a Health Savings Account?
A. HSAs are a significant expansion of the current MSA program. Unlike MSAs, HSAs provide the following:
Everyone with a qualified high deductible plan is eligible to participate (includes all size employers, the self-employed, individual and families who are not self-employed).
HSAs can be funded by the employer, employee or combination of both within the same calendar year HSAs are permanent and portable. Larger tax-deferred contributions to custodial accounts There are broader deductible ranges.
Q. What is a high deductible insurance plan?
A. A high deductible insurance plan is a health plan with a minimum deductible of $1,000 for self-only coverage and $2,000 for family coverage.
The maximum out-of-pocket expenses for allowed costs must be no more than $5,000 for self-only coverage and no more than $10,000 for family.
Q. Does the HSA law allow for higher deductibles than MSAs?
A. Yes. The deductibles available May 1, 2004 are:
Individual: $1000, $1500, $2050, $2550 and $4950
Family: $2000, $3000, $4100, $5100 and $9900
Deductibles for 2005 are:
Individual: $1100, $1600, $2100, $2600 and $5000
Family: $2200, $3200, $4200, $5200 and $10000
Q. Can a Medical Savings Account be rolled into a Health Savings Account?
A. Yes. MSAs can be rolled into HSAs on a tax-free basis, but it is not necessary. If, however, you choose to participate in the new HSA contribution limits and deductibles at this time, complete an HSA Enrollment Form.
Q. Can MSA inforce business participate in the new HSA program (i.e. expand the contribution amounts)?
A. Yes. You can participate in the new HSA program as long as you complete the HSA Enrollment Form. MSA clients may retain their current deductible, coinsurance limits and contribution amounts, if they choose. (See question above.)
Q. What are the new maximum contribution limits?
A. Annual contribution limits for 2004 are capped at either the high deductible plan deductible or $2,600 for an individual or $5,150 for a family — whichever amount is less.
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Q. Does the account need to be funded before year-end?
A. You have until the tax-filing deadline of the following year to make a contribution for the previous tax year.
Q. Is there an age at which an individual must withdraw money from an HSA?
A. With an IRA or 401K once the person reaches 70 1/2 they are required to make withdrawals from the money in these tax-deferred accounts. That is not the case with HSAs. There is no requirement that withdrawals from an HSA begin at 70 1/2 (as there is with IRAs and 401Ks).
Q. Is the HSA contribution prorated for the year?
A. Yes, if your plan isn't effective for the entire calendar year, only the pro-rated portion of the maximum may be contributed and deducted. For example, if your plan is effective February 1st, you could contribute 11/12 of the maximum contribution limit.
Q. Does the maximum Out-Of-Pocket expense of $5,000 for individuals and $10,000 for families include the deductible?
A. Yes. Total OOP expenses including the deductible can be no greater than $5,000 for an individual and $10,000 for a family.
Q. Can a policyholder continue to deposit into an MSA as long as the insurance plan is a qualified high deductible plan?
A. Yes. MSA policyholders have a lifetime right to their MSA custodial account under the rules.
Q. Will existing qualified plans continue to have deductibles increasing annually according to COLA?
A. Yes.
Q. Is the One Deductible the only HSA compatible plan?
A. Yes. Separate Rx deductibles and copays are not compliant with the new HSA law. 
Q. What happens under the HSA law once someone becomes eligible for Medicare?
A. Once a person becomes Medicare eligible and is enrolled in the Medicare program, he/she can no longer contribute to an HSA.
However, he/she can use the accumulated funds to cover qualified medical expenses not covered under Medicare or his/her supplemental plan.
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Q. Can minors have a “self-only” HSA?
A. According to the Treasury guidance, minors who are claimed as a dependent on another person’s tax return are not eligible to have a “self-only” HSA. They can be covered by their parent’s or guardian’s HSA plan.
Q. Will all plans with deductibles of $1,000 and up qualify as an HSA with Assurant Health?
A. Our current “non-One Deductible” plan designs would not qualify for HSA status due primarily to the separate drug deductible.
Q. Does a person buying an HSA need to have “earned” income in order to deduct the contribution? Can they deduct it against “unearned” income (i.e. pension, investment, etc.)?
A. An individual who has less earned income (even no earned income) than his/her HSA contribution may still take the full above-the-line deduction.
Q. Is the integrated (common) deductible part of the definition of high deductible health plan/HSA legislation?
A. No, a “common” deductible is not required. However, no family member may receive benefits until at least $2,000 has been incurred. Our plans have a common deductible that is compliant with the HSA law.
Q. Since deposits can be made by anyone on behalf of the account beneficiary, who can legally take the tax deduction?
A. Contributions made by a family member on behalf of an eligible individual to an HSA are deductible by the eligible individual in computing adjusted gross income.
Q. Are health insurance premiums considered a qualified medical expense?
A. Health insurance premiums are not qualified eligible expenses except for the following scenarios: qualified long term care insurance, COBRA and health care coverage while receiving unemployment compensation.
Funds can also be used to pay for Medicare Part A or B premiums (not Medicare supplement premiums).
Q. Who can deduct premium payments from their taxes?
A. Today, the self-employed can deduct their premiums. We are working with Congress to pass legislation that will allow everyone to deduct 100% of their premium payments. Until such legislation is passed, only the self-employed can deduct any portion of their premium payments.
Q. What does “first-dollar benefits, except for wellness” mean?
A. A high deductible health plan may still be federally qualified if it does not apply the deductible to preventive care benefits. State mandated wellness benefits are considered preventive care benefits. If your state does not have a wellness mandate, benefits are paid subject to deductible and coinsurance.
Q. If a client files an extension on his/her taxes, would he/she have extra time to contribute money into his/her HSA custodial account?
A. The client could contribute until the tax filing deadline. An extension does not affect the amount that a client can contribute to the HSA.
Q. How much can a client contribute to an HSA account if he/she changes the plan deductible mid-year?
A. If a client changes his/her deductible mid-year, his/her contribution will be pro-rated based on the new deductible. For example, if your client changes the deductible from $2,000 to $5,000 in June, his/her contribution is 6/12 of $2,000 ($1,000) plus 6/12 of $5,000 ($2,500), for a total of $3,500 for the year.
Q. Can clients roll funds from an IRA, HRA or FSA into an HSA?
A. Rollovers from an IRA, HRA or FSA are not permitted.
Q. Can clients roll funds from an HSA into another investment vehicle, such as an IRA, HRA or FSA?
A. No.
Q. If an unmarried insured has single coverage, can HSA funds be used to pay for qualified medical expenses for his/her dependents?
A. Yes.
Please Contact us if you have any questions about any of our health insurance plans.
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