Health Savings Accounts

We are pleased to help you understand how Health Savings Accounts might work for you.  If you’d prefer to listen to a sound file, click the links below:

Health Savings Accounts* (Radio show where Betty was a guest on this topic during the second half)

Medicare D and HSA** (Radio show where Betty spoke on H.S.A.s as well as Medicare part D)

Congress authorized the creation of Health Savings Accounts as part of the 2003 Medicare Modernization Act.  HSAs can be set up by consumers or by employers and give individuals the opportunity to use pre-tax funds to pay medical bills and to save for future health care expenses.  HSAs are established in combination with insurance coverage under a qualifying High Deductible Health Plan (HDHP).  Most of these HDHPs include access to insurance company preferred provider networks, so expenses will likely be discounted when network providers are used.  Any earnings realized in a Health Savings Account are federally tax-sheltered, similar to an I.R.A.  California has not yet recognized the tax savings, but other states have.

Once you’ve purchased the High Deductible Health Plan, you may contribute as much as 100% of the federal maximum, though you are not required to fund your Health Savings Account at all.  For 2019, the maximum contribution for a single person is $3,500, $7000 for a couple or family.   Those age 55+ may make an additional $1000 “Catch Up” contribution. In order for both spouses to deposit their catch up contribution, they will need to have separate Health Savings Accounts.  See your CPA for details.

The maximum amount of your contribution may change if you are not covered by the qualifying high deductible health plan (HDHP) for the entire calendar year.  As you incur health expenses (as defined in IRC section 213, Publication 502) under the deductible, you can use the funds in your HSA via check or debit card with no tax consequences.  If funds are not spent during the year, you keep the money in your account.  Another IRS publication offers additional information (publication 969).

Over the course of many years, tens of thousands of tax sheltered dollars may accumulate and can be used to pay COBRA premiums, Long Term Care Insurance Premiums, or continue to pay expenses not covered by your HDHP, such as orthodontics, acupuncture, contact lenses, etc.  After Medicare eligibility, no further contributions may be made to the savings account, but funds may continue to be used to pay for health expenses.  You may only contribute to your H.S.A. while you are covered under the qualifying high-deductible health plan.

HSAs are a great option for the self employed and owners of closely held corporations, but may not generally be a good idea for larger businesses.  Employer contributions to the HSA become vested immediately and are owned by the employee.  The funds in the Health Savings Account will be portable, so employees may take the accounts with them upon termination.

For additional information, you may find the following documents helpful:

HSA US Treasury Tri-fold 2009 (no update for 2010 or later)

U.S. Treasury Deptartment 2010-HSA indexed Amounts.


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