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HSA Plans

Health Savings Account 411

Avmed Health Savings AccountsAvmed Health Insurance Plan

What is a Health Savings Account (HSA)?

An HSA is a savings and spending account that offers members a tax-advantaged way to pay for qualified medical expenses as well as a way to save for the future. The HSA is combined with a qualified High Deductible Health Plan (HDHP) that can be funded with pre-tax dollars.

Tell me more about the HSA

Health Savings Account can work for anyone regardless of their income or state of health. Best of all, the interest accumulates tax-free over time. Account balances can be carried over to the following year to pay for future qualified medical expenses or can even be saved for medical expenses incurred after retirement.

What can an HSA be used to pay for?

The HSA can be used to pay for:

  • the deductible of a qualified HDHP
  • co-payments or co-insurance for services covered by the HSA-Qualified HDHP

The HSA may also reimburse you for qualified expenses not covered by the health plan as outlined in IRS Publication 502. (For a complete listing of qualified expenses see IRS Publication 502 at www.irs.gov

What are the tax benefits of an HSA?

Your personal contributions offer members an “above-the-line” deduction. An “above-the-line” deduction allows you to reduce your taxable income by the amount you contribute to your HSA. You do not have to itemize your deductions to benefit. However, you receive the benefit of the tax deduction. The account rolls over into the following year and grow tax-free. Money can be withdrawn tax-free as long as it is used to pay for qualified medical expenses. AvMed recommends that account holders consult a tax advisor for further details.

Am I eligible for a Health Savings Account?
To open a Health Savings Account, you must meet certain requirements set by federal regulations:

  1. Covered by an HSA-Qualified High Deductible Health Plan
  2. Not covered under another health plan that is not a High Deductible Health Plan (including a selected family plan that a spouse may have)
  3. Not enrolled in Medicare
  4. Cannot be claimed as a dependent on someone else’s tax return

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What Could My HSA be Worth?

Since the funds in your HSA account roll over year after year, you can build a considerable balance over time. Remember, you control the account! You can use the funds, tax-free, to pay for qualified medical expenses now and in the future.

For example:
Assume you contribute $2,000 annually into your HSA and only use $500 on medical expenses each year. The $1,500 a year you save in your Health Savings Account continues to earn interest, tax-free, year to year. If you earn 5% interest on your money, your account could be worth over $49,000 after 20 years! (The actual return is subject to interest rates and or investment returns.)

AvMed makes HSAs easy

  • Enroll with AvMed’s HSA-Qualified Health Coverage Plan
  • Check the box labeled administered by HealthEquity
  • Fill out your enrollment application upon Medical Underwriting approval
  • HealthEquity will open your account and send you the welcome guide and HSA Visa┬« debit card

Using the HSA dollars you may pay for your portion of qualified medical expenses by:

  • Using the HSA debit card to pay a physician, pharmacy or health care facility directly.
  • Authorizing payment by check from the HSA account.
  • Paying your provider through alternative sources and reimbursing yourself.

You may also choose not to use the funds in your HSA and save them for future medical expenses.

How much can I contribute to my HSA?

There are a few rules that govern the amount you can contribute to your HSA on an annual basis. As long as you are covered under an HDHP for the next 12 months, you can contribute the maximum set by law, which for 2009, are limited to $3,000 for single coverage and $5,950 for family coverage. 2010 limits have been set at $3,050 for single coverage and $6,150 for family coverage. These limits may be adjusted for inflation annually. Any contribution made on your behalf counts towards the maximum. (If you are over 55, you can even make catch up contributions similar to your 401K).

Can I invest the money in my HSA?

Yes, with HealthEquity any dollar amount over $2,000 can be invested in mutual funds. Investments in mutual funds are not FDIC insured against loss of value.

Can I use the HSA to pay for a medical expense not covered by my health plan?

Yes. Your savings account dollars are available for any IRS qualified medical expenses, even if your health plan does not cover these expenses. However, expenses for non-covered services under the health plan do not count toward your HDHP’s annual deductible or out-of-pocket maximum. Please refer to IRS Publication 502 for a list of HSA-qualified expenses.

Can I use the HSA to pay for a non-health care expense?

You can use the account for non-health-related expenses; however, any funds used for non-qualified health care expenses under age 65 are considered taxable income and may be subject to a 10 percent penalty. There is no penalty if you withdraw the money and are age 65 and over for non-health related expenses.

However, the funds would be considered as ordinary income and subject at your individual tax rate. You will need to account for all disbursements from your HSA when you file your income taxes. You should consult your tax advisor for additional information.

Who can contribute to my HSA?

You, your employer or anyone else may make tax-free deposits into your personal HSA account.

What if I am no longer covered by an HDHP?

You can keep your HSA account. It’s always your money. But you can no longer make contributions to your HSA if you’re not with an HSA-Qualified HDHP.

Who owns the health savings account?

Once the money is in your account, it belongs to you. You own it, manage it and take it with you if you change jobs or retire. The funds can also be transferred as a part of the member’s estate.

Do I need to file claim forms to access my HSA funds?

No. HSAs do not require medical claims validation. You are responsible for keeping accurate records of all HSA financial transactions for your annual tax return filings.

If I am self-employed, can I contribute on a pre-tax basis? How about for partnerships, S corporation owners who own more than 2% or for LLC owners?

The self-employed can only take an above-the-line deduction for their premium and HSA contribution. Regardless of how your S corporation or LLC is structured, the only way you can structure your HSA contributions is as an above-the-line deduction. The HSA legislation simply cited current law in this regard. It was a political impossibility in the HSA legislation to make the necessary change in law to allow pre-tax contributions for LLC owners, S corporation owners or the self-employed. For further guidance for partnerships and S corporations, see IRS Guidance 2005-8.