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Health Savings Accounts (HSAs)

A Health Savings Account is an account to which an individual employee or the employer can contribute if the employee meets certain criteria. HSAs offer substantial tax benefits and serve as savings accounts available for medical and prescription drug expenses.

In order for the employee to qualify for an HSA, he or she must:

• have health coverage under an HSA-qualified "high deductible health plan."
  
  
• have no other first-dollar medical coverage.
  
  
• not be enrolled in Medicare.
  
  
• not be claimed as a dependent on someone else' tax return.

Request a quote from a carrier offering HSA-compatible plans in your area >>

HSAs can offer a number of advantages to small-business owners and to their employees.  These include:

• High-deductible insurance combined with an HSA protect the employee against unexpected medical bills.
  
  
• Dental and vision care are considered qualified medical expenses under an HSA.
  
  
• Switching to high-deductible health insurance should reduce premiums for whichever party, the employee or the employer -- or a combination of both-- is responsible for health insurance premiums.
  
  
• The employee is free to use the funds in the HSA for current medical expenses or to save the money for future needs, including health care during retirement before becoming Medicare-eligible. There is a 10 percent penalty for withdrawal of HSA funds for any purpose other than qualifying medical expenses, but the penalty no longer applies after the employee turns 65.
  
  
• Funds remain in the employee's account from year to year.
  
  
• The HSA provides tax deductions upon contributing to the account, tax-free earnings through investment, and tax-free withdrawals for qualified medical expenses.

In order for the individual to open an HSA, he or she must also have coverage under a high-deductible health plan. Generally, this is health insurance that does not cover first-dollar medical expenses, has a deductible of more than $1,050 for an individual or $2,100 for a family, and has an annual cap on out-of-pocket expenses of no more than $5,250 for an individual or $10,500 for a family. A insurance agent or broker should be able to sell an HSA-qualified high-deductible health plan.

The qualifying individual opens an HSA through a bank, a credit union, an insurance company, or another financial institution. Some small-business owners have discovered that providing high-deductible health insurance and contributing to employees' HSAs provides employees with incentives to become more actively involved in their own health care decisions.

Request a quote from a carrier offering HSA-compatible plans in your area >>