High Deductible Health Plans and HSAs - FAQ

New York Small Business Network

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Frequently Asked Questions

I heard that a Health Savings Account (HSA) is a special tax-sheltered account that is similar to an IRA, but overall how does an HSA work?
What is required in order to set up a qualified HSA?
Is there a limit on how much I can contribute to my HSA each year?
How much does it cost to set up an HSA and are there any on-going administration fees once the account is set up?
What will I receive once the account is set up?
How do I make deposits to my account?
Do I have to fund my account every year?
Is the bank account my only investment option?
What expenses can I use my HSA account for?
What happens to my HSA bank account if I never withdraw funds or if I change jobs, leave the workforce or retire?
What expenses are counted toward my deductible?
What happens if my medical expenses exceed the amount of my deductible?
How do I pay for medical care with my HSA?
Can I go see any doctor I want with the HSA plan?
Where do I send my claim forms?
What tax reporting to the IRS is required?

1. I heard that a Health Savings Account (HSA) is a special tax-sheltered account that is similar to an IRA, but overall how does an HSA work?
The savings account portion of the HSA plan works in conjunction with a “high deductible” health insurance plan. All the money deposited in the HSA is 100% tax-deductible which makes those dollars “tax-free”. The insurance company pays the “big” bills (covered expenses in excess of the deductible) and you pay the “small” bills with tax-free money in your HSA account. You can even use these tax-free dollars to pay for medical expenses not covered under the insurance plan, such as dental, vision, alternative medicines etc. What you don’ t use is yours to keep and accumulate towards your retirement.

2. What is required in order to set up a qualified HSA?
You must first be insured under a qualified high deductible major medical plan offered by your employer. Once the qualified high deductible plan is set up, you or your employer is then eligible to establish and make contributions to your HSA savings account. The account must be established and maintained by a qualified HSA custodian, which simply means a financial institution that has been approved by the IRS as an HSA administrator.

3. Is there a limit on how much I can contribute to my HSA each year?
You are allowed to deposit into your HSA up to 100% of your annual health plan deductible.

4. How much does it cost to set up an HSA and are there any on-going administration fees once the account is set up?
Each administrator has different fees. Some charge account set up fees. In addition some banks may charge minimal monthly maintenence fees.

5. What will I receive once the account is set up?

You will receive a welcome packet from our HSA Administrator, which will include
A starter book of checks and a debit card, which will be sent to you directly from the bank (under separate cover).
You will receive an Identification Card to present to your providers whenever you receive service.
You will receive a Certificate of Coverage detailing your plan of benefits.

6. How do I make deposits to my account?
Deposits can be mailed directly to our HSA Administrator or you can set up an automatic transfer into your HSA.

7. Do I have to fund my account every year?
No, you do not have to fund your account each year but you do need to maintain a low minimum balance in the HSA. However, it is to your advantage to make annual contributions in order to take full advantage of the tax savings in accordance with IRS guidelines as well as save money for retirement (age 65). Remember, an HSA is similar to an IRA. You are allowed to contribute to the account and fully deduct your contributions 100% every year.

8. Is the bank account my only investment option?
No. Our HSA Administrator offers a group of mutual funds in which you may invest.

9. What expenses can I use my HSA account for?

Please see our Links Section for a copy of IRS Publication 502.
Funds can be withdrawn as supplemental retirement income at age 65. Funds withdrawn at that time are considered taxable income.
Funds withdrawn prior to age 65 for non-qualified expenses are taxable income and are subject to a 10% penalty.

10. What happens to my HSA bank account if I never withdraw funds or if I change jobs, leave the workforce or retire?
Your HSA account belongs to you and can be transferred from one employer to the other. The less money you spend on medical expenses, the more will remain in your HSA account while earning interest. Your account grows with you towards retirement and is treated as a typical IRA with all the IRS guidelines applying. At age 65 funds can be withdrawn in their entirety without penalty for any reason. Remember that the HSA bank account is portable. You own it. You take it with you wherever you go.

11. What expenses are counted toward my deductible?
Covered services are reimbursed based on the plan of benefits elected. This reimbursement will appear on your Explanation of Benefits Form and will be counted toward your deductible.

12. What happens if my medical expenses exceed the amount of my deductible?
If your covered expenses for the year exceed the deductible of your HSA major medical insurance plan, the plan will take over and pay the balance of the qualified expense in accordance with the plan of benefits elected.

13. How do I pay for medical care with my HSA?
You can access your HSA funds by using your HSA debit card or your HSA checkbook.

14. Can I go see any doctor I want with the HSA plan?
Yes! An HSA is NOT an HMO! With an HSA, you are free to use any doctor and any hospital you choose. However, significant savings are available to you for choosing an in-network provider for care.

15. Where do I send my claim forms?
Claims for medical services should be submitted to the address shown on the back of your Identification Card.

16. What tax reporting to the IRS is required?
You will be required to complete IRS form 8889 with your income tax return each year. You do not have to itemize to complete this form. This form reports to the IRS what your total deposits and withdrawals are from your account each year. The HSA Administrator will provide you with the information necessary to complete this form and they will also file the
information electronically with the IRS.

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