Health Insurance for Individuals, Families, Seniors, Self Employed and Small Businesses

A Health Savings Account (HSA) is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur.

A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of IRAs or MSAs. CDI has no jurisdiction over HSAs, even though the HSA may accompany an insurance product.

In an HSA, you contribute money to a special bank account to be used for medical bills. You get a Federal tax deduction on the money you contribute to your HSA, and if you use the money for medical expenses, you pay no Federal tax or penalty on it.

The HSA account can also earn Federal tax-free interest. Note: there is no California tax exemption for your HSA contribution, or for the interest the account earns.

HSA's always go along with a high-deductible health insurance plan -- a $1,500 deductible, for example. This means that if you need medical treatment, you must first pay the deductible, which you can do with money from the HSA. There are limits on how much you can contribute each year. In 2006 you can contribute up to $2,700 per year for yourself (with a $3,000 deductible plan), or $5,450 per year for yourself and your family (with a $6,000 deductible plan).

HSA's "roll-over," that is: money you saved doesn't disappear at the end of the year if you haven't used it. You simply continue contributing to the HSA. There is no limit to how much you can have saved in your HSA.

The HSA is also "portable," so you can move or change jobs and take the HSA with you. Some employers may also make contributions to your HSA for you as a job benefit.

Who is eligible for an HSA?

Once on Medicare, you can not obtain a new HSA. If you already had one before joining Medicare, however, you can keep that HSA and use it, but you can not continue contributing to it. You can be eligible for an HSA even if you have already have a high-deductible health plan, but not if you already have traditional health insurance. You can also still be eligible if you have disease-specific insurance (like a plan to cover just your diabetes).

HSA money can be used for preventive medical services and drugs (both prescription and over-the-counter) without Federal tax or penalty. You can use money from your HSA for non-medical expenses, but you'll usually have to pay a tax and a penalty.

What are the advantages of HSAs?

HSAs have lower deductible requirements and higher out-of-pocket limits than MSAs, making the accounts more flexible and accessible.

HSAs have separate out-of-pocket maximum for services provided outside the network.

HSAs, unlike MSAs, may be offered as part of an employer's cafeteria plan.

HSA contribution limits are greater than MSAs.

An employer and employee are both permitted to contribute to an HSA in the same year.

HSAs allow "catch-up" contributions for persons between the ages of 55 and 65.

Where can I obtain additional information on HSAs?

Additional information regarding HSAs can be obtained from U.S. Department of the Treasury's Web site at www.treas.gov.

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