Members Health

What is an HSA?
A Health Savings Account (HSA), is a trust account that allows consumers to save and pay for a wide range of healthcare expenses on a tax-advantaged basis. HSAs work in tandem with High Deductible Health Plans (HDHPs).

Individuals benefit from lower premiums, tax incentives, and greater control over how they spend their healthcare dollars, in exchange for responsibility for a set amount of first-dollar expenses each year.*

HSAs were signed into law through the Medicare Prescription Drug Improvement and Modernization Act of 2003 and are the only federal savings vehicle to enjoy a triple tax advantage. Contributions, withdrawals for qualified medical expenses, and investment gains are all tax free. The accounts are consumer-owned, as well as portable between jobs and health plan carriers.

These accounts were designed to encourage “consumerism” among healthcare users and to lower the ever-rising costs to employers of providing health benefits to employees. Individuals, charged with paying for care with out-of-pocket dollars, are incented to become more savvy consumers — comparison shopping for healthcare to get the best care for the best price.

*These are expenses you must pay until you hit your yearly deductible.

What is an HDHP?
A High Deductible Health Plan (HDHP) is an alternative form of health insurance where plan holders pay lower premiums in exchange for a higher deductible. Together with HSAs, they form the backbone of what has been coined, “consumer-directed healthcare” (CDH).

To open a Health Savings Account, you must have an HDHP. While this combination isn’t right for everyone, for most people an HDHP plan can cost less than traditional health coverage. The difference can be tucked into the HSA, tax free, to either spend on qualified medical expenses, including co-pays and the deductible itself, or to save and invest for future use.

What defines an HDHP?
Federal law sets the requirement for what constitutes a High Deductible Health Plan. For 2009, the minimum deductible is:

$1,150 for individual coverage
$2,300 for family coverage

The policy can have an annual deductible as high as $5,800 for self-only coverage or $11,600 for family coverage in 2009. If a high deductible policy has an annual deductible below or above these amounts in 2009, it is not an HSA-qualified policy.

In general, all medical expenses covered by the HDHP are applied toward the deductible — including prescriptions. These expenses can be paid with your tax-free HSA funds.

You do not always have to meet your deductible before your health plan kicks in. Many HDHPs cover pre-deductible preventive services (such as prenatal care, annual physicals, mammograms, etc.).

HDHPs, like most health plans, have an annual out-of-pocket limit. This is a health policy provision that puts a ceiling on the amount of money you must pay in a plan year before the carrier must pay 100% of the cost of benefits covered.

HSA-eligible plans offer several advantages over traditional policies in this regard. First, the deductible, co-pays, and coinsurance paid must count toward the out-of-pocket limit under these plans. (Under some traditional policies, the deductible and co-pays do not go toward the out-of-pocket limit.) Second, some HMO and PPO plans don’t have a limit on out-of-pocket expenses — leaving plan holders exposed to unexpected expenses.

Often, HDHPs have more comprehensive coverage (sometimes even for chronic illnesses) than traditional PPOs.

How do I find an HDHP?
There are several ways for you to find a qualified policy:

If you are a credit union member, ask if your credit union has an insurance brokerage firm that offers HDHPs in your state.
Ask your current employer.
Contact your insurance company, or an agent/broker licensed to sell health insurance in your state. (Most large national insurance companies offer HDHPs.)
Contact your local Chamber of Commerce.
Contact your state insurance department.

Who is eligible for an HSA?
Any adult can open an HSA, provided he/she:

has health plan coverage through an HDHP;
does not have any other first-dollar health plan coverage (except special plans like vision, dental, or long-term care);
is not enrolled in Medicare; and/or
cannot be claimed as a dependent on anyone else’s tax return.

Where can I open an HSA?
Credit unions, banks, insurance carriers, and other financial institutions can be HSA trustees for an individual.

How much can I contribute to an HSA each year?
The 2009 contribution limits are $3,000 for single coverage and $5,950 for family coverage. Any contributions you make to your HSA prior to April 15, 2009 may be designated as 2008 contributions, provided you do not exceed the 2008 contribution limits of $2,900 for single coverage and $5,800 for family coverage.

Also, keep in mind that if you are 55 or older, you are eligible to make an annual catch-up contribution, which is $900 for 2008. The catch-up contribution limit is $1,000 for 2009 and all years forward.

What are the advantages of an HSA?
HSAs may not be the right choice for everyone. But one of the great features of HealthBanker™ is its health plan comparison calculator, which lets you answer that question for yourself.

For most people, though, the benefits are substantial:

Tax Savings
Contributions, qualified withdrawals, and asset growth are all “above the line” and tax free.
Investment Savings
You can use your HSA to pay for your medical expenses, or you can use the account as a tax-advantaged investment vehicle. Unlike Flexible Spending Accounts, there is no “use it or lose it” penalty. Your unused balance grows through interest and investment.
Control
The account is yours. You pick your trustee. You decide when and how to contribute to the HSA, where to invest funds, and when to use it.
Portability
With no “use it or lose it” penalty (unlike Flexible Spending Accounts), you take the account with you when you move, change jobs, or insurance plans. You can, however, keep your HSA at E Federal Credit Union or your trustee of choice.
Flexibility
You can use your HSA to pay for a wide range of qualified healthcare expenses that often aren’t covered by more traditional health plans and accounts.
Affordability
For most people, an HDHP — with its lower premiums, pre-deductible preventive care, and extensive post-deductible coverage — means lower healthcare outlays. If you are a small business, you may finally be able to afford to offer health benefits to your employees.
Accessibility
If you are uninsured or self-employed, the HSA/HDHP option may finally allow you to afford health coverage.

Who can contribute to my HSA?
You, your employer — even a third party such as a family member — can contribute to your HSA (up to the yearly maximum contribution). But regardless of who funds your account, it belongs to you!

What are “qualified” medical expenses?
With an HSA/HDHP, you can use the funds in your HSA account to pay for qualified medical expenses — including over-the-counter medicines and medical supplies, even if these expenses aren’t covered under your insurance plan. The list is expansive and is determined by federal tax law (mostly found in IRS Publication 502). Here is a partial list, including perhaps some unexpected ones:

Acupuncture
Hearing aids and batteries
Lead paint removal
Insulin treatment
Dermatology treatment