Blue Access for Producers

Health Savings Account Sales Guidelines

Health Savings Account Sales Guidelines: Eligibility, Eligible Expenses, Contributions, Distributions and Taxes

Eligibility for Health Savings Accounts
Any individual under age 65 who is covered by a high deductible health insurance plan and who is not entitled to or covered by Medicare or other health insurance—including an unlimited health reimbursement account (HRA) or health financial savings account (FSA)—can qualify.  To qualify, individuals cannot be claimed as a dependent on someone else’s tax return.

Eligible expenses for Health Savings Account's
HSAs can be used to pay for many types of medical expenses, even some which are often excluded on health insurance plans. These include: 

  • Health insurance plan deductibles, copayments and coinsurance
  • Prescription and over-the-counter drugs
  • Dental services, including braces, bridges and crowns
  • Vision care, including glasses and Lasik eye surgery
  • Psychiatric and certain psychological treatments
  • Long-term care services and insurance premiums
  • Medically-related transportation and lodging
  • IRS Code 213 expenses
  • COBRA premiums
  • Health insurance premiums

Check with a tax advisor or go to www.irs.gov  for a complete list of eligible expenses.


NOTE: Expenses NOT eligible include Medicare supplemental coverage and Medigap. To be sure if a medical expense qualifies as eligible, clients should check with a tax advisor or the IRS.

Health Savings Account Contributions

  • Annual contribution limitations: individuals, lesser of annual deductible or $2,650; families,   lesser of annual deductible or $5,250 (these are 2005 contribution amounts and may increase based upon IRS guidelines)
  • Additional catch-up contributions ($600 in 2005) are allowed for individuals aged 55-64
  • Married couples can make two catch-up contributions
  • Catch-up contributions will be increased by $100 per year until they reach $1,000 in 2009
  • Contribution deadline is due date of individual’s federal income tax return
  • Contributions may be made by any person, regardless of his or her relationship to the individual
  • Rollover contributions are allowed from another health savings account or medical savings account (MSA)

 

Health Savings Account Distributions

  • Distributions are tax-free for qualified expenses of covered individual, spouse and dependents (cannot have joint health savings account but expenses for both can come out of one account)
  • Expenses must be incurred after the HSA has been set up
  • Non-qualified expenses are treated as income (10 percent tax applies)
  • Removing funds from account does not have to occur at same time as the actual medical expense
  • Distributions may occur even if the individual is no longer eligible to contribute to the HSA
  • HSA funds may accumulate for use after retirement
  • The HSA holder is entirely responsible for determining the eligibility of the expense as well as for maintaining records and reporting

 

Tax Guidelines for Health Saving Accounts

  • Contributions are not subject to federal, FICA or FUTA taxes
  • Employer contributions are excluded from income (not taxable to employee)
  • State income tax exclusion applies
  • Investment earnings are not subject to Federal income taxes
  • Clients should be directed to consult a tax advisor for specific guidelines

 

Consult these resources for more information about HSAs:

www.treas.gov/offices/public-affairs/hsa/technical-guidance  

This site includes technical information and basic information about HSAs. It also includes a comprehensive Frequently Asked Questions section.

www.ama-assn.org  

This site provides a comprehensive report by the American Medical Association on the history and development of HSAs. It also includes a comparison with medical savings accounts and information about the demand for HSAs by individuals and employers.