Health Savings Accounts:

Frequently Asked Questions

Q. What is a Health Savings Account?
A. A Health Savings Account, or HSA, is a savings account which can be used to pay medical expenses not covered by insurance. Contributions to the plan are deductible from an accountholders' federal income tax and, where permitted, from state income tax. Individuals can accumulate funds in the account from year to year.

Q. Do I still need medical insurance?
A. Yes. Under the legislation passed by Congress, the HSA must be coupled with a high-deductible medical insurance plan. Individuals pay small medical bills out of their own pocket up to the deductible but have medical coverage in case of serious illness or accident.

Q. For the purpose of HSAs, what is a high deductible plan?
A. $1,000 minimum deductible plan with a total out of pocket maximum of $5,000 per individual and a deductibles of a $2,000 minimum with a maximum of $10,000 out-of-pocket for families.

Q. What is the maximum HSA deposit amount?
A. If you have an individual policy covering only yourself, you can contribute up to 100% of the deductible per calendar year or $2,600 whichever is less. For a family covered by an individual plan, up to 100% of the family deductible per calendar year or $5,150 whichever is less, can be contributed.

Q. What happens to the money in the HSA Account?
A. The money can be carried over for medical expenses the following year, and you can continue contributing up to the maximum deposit each year. HSA funds can be used to pay post-retirement healthcare expenses not covered by employers or by Medicare, or to purchase long-term care insurance

Q. Can I withdraw funds from the HSA for non-medical expenses?
A. If you want to withdraw funds for another purpose prior to age 65, a 10% penalty will apply in addition to income tax. After you turn 65 or become eligible for Medicare, there is no penalty for withdrawal; however, ordinary income tax must be paid.

Q. How much money will this save me on taxes? Is an HSA preferable to just deducting medical expenses on my income tax?
A. Most individuals save on taxes using HSAs because of the IRS limits on deducting medical expenses. How much will depend on your income bracket, any state taxes in your area, whether your state allows a deduction for HSA funds.

Q. When can I start depositing money into an HSA account?
A. Immediately after you start a qualified Major Medical Plan.

Q. Can I make a lump sum Deposit at the beginning of the year?
A. You may make an annual lump sum Deposit, or if you wish you can set up Deposits on a monthly basis.

Q. Are there administration fees?
A. This can vary from company to company..

Q. Does the account pay interest?
A. Some companies also offer accounts that pay interest. This interest is normally tax deferred. Some companies allow you to invest your HSA funds in Mutual Funds.

Q. How will my HSA account pay claims?
A. Some companies give you a debit card to pay your claims with, others may combine the processing with insurance claims processing. Some may require you to fill out claims forms. Check the companies you are thinking of buying from to see how they pay claims.

Q. I currently have an MSA and I want to take advantage of the new tax rules on the HSA's.  Can I do this?
A. Yes you may "Rollover" your MSA to an HSA. Please contact the administrator of your MSA for the forms or you may find the MSA Bank information on our www.msawashington.com site.