Health Savings Account (HSA) Frequently Asked Questions

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1 1. What is an HSA? A Health Savings Account (HSA) is a personal bank account created exclusively for individuals to pay for eligible health expenses and save for future healthcare expenses tax-free. Tax-deductible Contributions to the HSA are 100% deductible (up to the legal limit) just like an IRA. Tax-free Withdrawals to pay qualified medical expenses are never taxed. Tax-deferred Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are taxfree. HSA Money is yours to keep Unlike a flexible spending account (FSA), unused money in your HSA isn t forfeited at the end of the year; it continues to grow, tax-deferred. 2. How does an HSA plan work? An HSA works in conjunction with a high deductible health insurance plan (HDHP). Your HSA dollars can be used to help pay the health insurance deductible and any qualified medical expenses, including those not covered by the health insurance, like dental and vision care. Any funds you withdraw for nonqualified medical expenses will be taxed at your income tax rate, plus 20% tax penalty. 3. Who can have an HSA? You are eligible as long as: You participate in an eligible high deductible health plan (HDHP) You are not covered by any other health insurance plan that is not an HDHP, even if the insurance is secondary coverage. You are not covered by Medicare, Medicaid, Champus or Tricare You are not claimed as a dependent on another person s tax return. You or your spouse are not participating in a Flexible Spending Account (FSA). (Limited FSAs are allowed). Page 1 of 6

2 4. What are the benefits of an HSA? High Deductible Health Plan: o Can cost less than other health plans o Provides quality health insurance o One plan year deductible per family o Preventive care is covered 100% o Aetna HNOnly (or OAMC) HSA 5 plan pays 80% of covered expenses after deductible is met and the Aetna HNOption (or OAMC in-network) HSA 2 plan pays 100% of covered expenses after deductible is met. HSA Savings: o Money you contribute is tax-free and can reduce your taxable income o Money in the account earns interest, tax-free o Money taken from this account to pay for your qualified health care is not taxed o Money rolls over from year to year no use it or lose it rule o You choose how and when to use your dollars o You own your HSA it goes wherever you go HSA Savings can also be used for : o Health insurance premiums when you are between employers o Qualified long-term care premiums o Medicare premiums and out-of-pocket expenses 5. How do I set up the HSA? When you enroll in a HDHP HSA plan offered by CHS, your enrollment data will be transmitted to PayFlex. PayFlex is the 3 rd Party Administrator that CHS uses for the HSA. PayFlex will use the information you provide during enrollment to set up your account. If PayFlex needs more data to set up your account, they will contact you at the address that you have on file with CHS. PayFlex will also send you a Welcome Letter with important information regarding your account. 6. What are the tax deductible contributions limits? In 2014: Self-only coverage $3,300 Family coverage $6,550 Catch-up contributions - $1, What is a Catch-up contribution? Eligible individuals who are over age 55 but under age 65 are allowed to make additional catch-up contributions to their HSAs. The catch-up contribution in 2014 is $1,000. Page 2 of 6

3 8. Does CHS contribute to my HSA? Yes, CHS will contribute: $750 toward the HSA for employee-only and employee/spouse coverage, and $1,000 toward the HSA for employee/children and family coverage. CHS contributions to an employee s HSA will be made quarterly beginning in July once each participant successfully opens the HSA account with PayFlex. 9. CHS contributes to my HSA. Can I contribute as well to the HSA? Both CHS and you may make contributions toward the contribution annual maximum. 10. What expenses are qualified for reimbursement from my HSA? You use the HSA funds to pay for qualified medical expenses. You are the one to determine if you are paying for qualified medical expenses. Generally speaking, qualified medical expenses are the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the cost for treatments affecting any part or function of the body (including dental and vision). It is not for general health. Examples of common qualified medical expenses include: Acupuncture Ambulance costs Artificial limb or prosthesis Some dental expenses Vision care (contact lenses, eyeglasses, Lasik surgery) Doctor s fees Hearing aids and hearing aid batteries Hospital Services Laboratory fees Prescription medicines Nursing services X-rays However, some expenses do not qualify. A few examples are: Surgery for purely cosmetic reasons Health club dues Illegal operations or treatment Maternity clothes Toothpaste, toiletries and cosmetics Page 3 of 6

4 See IRS Publications 502 ( Medical and Dental Expenses ) and 969 ( Health Savings Accounts and Other Tax-Favored Health Plans ) for more information. 11. Who is responsible for ensuring that I am only using my HSA account for qualified medical expenses? How you use your HSA account is solely between you and the IRS. You will want to save all receipts, invoices and statements that support withdrawals out of your HSA account in case you are audited by the IRS. 12. What if I use my HSA account for purchases that are not eligible medical expenses? If you use your HSA funds for non-eligible expenses, you will have to pay income taxes on that amount. You may also have to pay a 20% tax penalty. This tax penalty does not apply however if you are age 65 or older or you are disabled at the time you make this withdrawal to pay for non-eligible expenses but you would still have to pay income taxes on that amount. 13. Am I required to track the expenditures made from my HSA? Yes, you as the HSA owner are required to maintain a record of the expenses sufficient to demonstrate that the distributions were for qualified medical expenses. It is recommended that you keep track of all invoices and receipts for withdrawals from your HSA. 14. Can my HSA be used for dependents not covered by the health insurance plan? Generally, yes. Qualified medical expenses include unreimbursed medical expenses of you, the accountholder, your spouse, or dependents. 15. When can I begin using my HSA to pay eligible expenses? As soon as your account is open and there is money in it, you can use the account for qualified medical expenses incurred any time after your account opening date. Expenses incurred prior to your account opening date are ineligible for reimbursement from your HSA. 16. Does my HSA have to have money in it before I use it to pay a healthcare provider? Yes, this is a personal bank account in your name. Your card is a debit card, not a credit card. Like a checking account, the funds must be in your account before you can pay for an expense. You may incur overdraft fees and other charges so please look at the PayFlex materials closely as you open your account. Page 4 of 6

5 17. What if funds are not available in my HSA when I have a qualified medical expense? If you do not have enough money in your HSA to pay for qualified medical expenses, you will need to pay for the expense by some other means. Once the money is in your HSA account, you can withdraw the amount that you paid and reimburse yourself. 18. Will I lose unused money in the HSA at the end of the year? Unused contributions in your HSA will accumulate year after year tax-free until you need it. 19. My spouse and I have family coverage, can we both open an HSA? Yes, you may both open an HSA however, the total amount that may be contributed to yours HSAs is still the contribution limit. 20. Can I have an FSA and an HSA? No. If you are participating in the CHS Flexible Spending Account (FSA), you cannot open or contribute to a Health Savings Account (HSA). You may have a dependent care account and the HSA. 21. Can I contribute to the HSA if I end the plan year (June 30) with a balance in my CHS FSA? CHS allows FSA participants who have a balance on June 30 to continue to incur claims for expenses during the grace period. The grace period extends 2 ½ months after the end of the plan year, until September 14, You can continue to incur claims and use the FSA funds remaining in your Health FSA during the grace period. However, if you end the plan year (June 30) with a balance in your FSA, you cannot make contributions to your HSA until after the FSA grace period ends. CHS can not make contributions to your HSA until the 1 st of the month following the FSA grace period (October 1, 2014). You cannot use contributions made after the grace period for claims incurred prior to October 1, My spouse has an FSA or HRA through their employer, can I have an HSA? No. You can t have a regular FSA or Health Reimbursement Arrangement (HRA) and participate in an HSA. If you or your spouse has one of these, you are not eligible to participate in an HSA. An exception is if the FSA is a limited purpose FSA or the HRA is a limited purpose HRA provided to reimburse for dental, vision or preventive care only. 23. What if I started the HSA mid-year? CHS is offering the HDHP/HSA beginning July 1, 2014, which is mid calendar year. Employees who elect coverage after January 1, (employee who elect the HDHP/HSA during the open enrollment period, late enrollees and new hires) can contribute to the HSA as if eligible for the entire calendar year and these Page 5 of 6

6 contributions are tax-free. However, you have to stay in the HDHP through a testing period. The testing period starts with the month of December and continues through the end of the next year. This is a total of 13 months. If you do not stay in an HDHP through the testing period, then the contributions you made for the months that you did not have the HDHP are no longer tax-free. You will also have to pay a 10% tax penalty. Let s look at an example. You enroll in a HDHP HSA plan for employee/only coverage effective July 1, You did not have an HDHP for the first 6 months of the year. You can still contribute to the HSA to the full federal limit for the full year. For 2014, that is $3,300 (less CHS contributions) maximum that you can contribute. You must continue in the HDHP through December 31, That s the testing period. If you no longer have the HDHP at some point in 2015, you would have to pay income taxes on the amount that you contributed for the 6 months of You would also have to pay a 10% penalty on that amount. 24. What happens to the money in my HSA if I lose my HDHP coverage? Once funds are deposited into the HSA, you can use the account to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds. 25. If I leave CHS, what happens to my HSA? Your HSA belongs to you regardless of your employment. If you lose your job and elect to retain your HDHP under COBRA you may even pay the COBRA premiums from your HSA. Once the funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have a HDHP coverage, until used. There is no time limit on using the funds. 26. Why is it important to name a beneficiary for my HSA? If you have a surviving spouse, your HSA will be treated as your surviving spouse s HSA, but only if your spouse is the named beneficiary. If there is no surviving spouse or your spouse is not the beneficiary, then the savings account will cease to be an HSA and will be included in the federal gross income of your estate or named beneficiary. If there is no designated beneficiary, the HSA will become part of your estate and the fair market value is included on your final income tax return. You should choose a beneficiary when you set up your HSA. 27. Do I need to file any special forms with my federal tax return to report contributions to my HSA? Yes, you ll need to file IRS Form 8889-Health Savings Accounts with your federal tax return. Please consult a tax advisor if you have specific questions. Page 6 of 6