Your health savings account is your money. It’s up to you to keep track of all your expenses and reimbursements.
You should be sure to hold on to all records and receipts that show how you spent money from your account. This is important in case you are ever audited by the Internal Revenue Service.
Let’s look at other elements of the health savings account.
With a health savings account, you decide when to spend your money, and how much money to spend.
If you do not have health care expenses, you can leave your money in this interest-bearing account, which is protected by the FDIC. You can save the money in your account for future use, such as retirement.
You may also transfer your HSA money to an IRS approved investment account, such as a mutual fund, a stock fund, or a bond fund. HSA funds can be invested in the same type of funds as IRAs.
Let’s look at health savings account contributions.
The IRS sets a limit on how much money you can contribute to your health savings account each calendar year.
The current contribution limits are shown here.
If you are age fifty five or older, the IRS also let you make additional catch-up contributions. You can make these contributions until you enroll in Medicare.
Sometimes, by accident, people put more money into their accounts than the IRS limits allow. As long as you withdraw this excess money by April fifteenth of the following year, you will not be subject to a tax penalty.
Let’s look at some of the rules for contributing to the health savings account.
Both you and your employer can contribute money to your health savings account.
If your employer adds money to your HSA, make sure you know when that money will be available to you.
As long as you are enrolled in a qualified high deductible health plan by December first of the current year, you may make the maximum contribution to your HSA for that year.
You must stay enrolled in a qualified high deductible health plan for the full calendar year that follows – all the way through December thirty first of that year.
What happens if you do not stay in the plan for the entire year? In that case, the maximum contribution to your HSA is pro-rated based on the number of months you were enrolled in the qualified plan.
Let’s look at how it works.
Most employers who offer health savings accounts arrange for their employees to establish HSAs and contribute to their accounts on a pre-tax basis through payroll deductions.
Employers may contribute to your account at the beginning of the plan year, at each pay period, or on any schedule they choose. If your employer is contributing to your HSA, find out when those contributions will be made.
HSA contributions made through payroll deduction are generally made on a pre-tax basis, so the money you contribute to your HSA is not included in your income.
What if you are self-employed, or your employer does not contribute to your HSA? You can make contributions on your own.
These contributions can still be tax-free. They can be taken as an “above-the-line” deduction on your federal tax return, reducing your taxable income dollar for dollar. See your tax adviser for more details.
State tax rules related to HSAs vary from state to state. However, most states offer the same deductions on state income taxes that apply to federal income taxes. States such as Maryland, Virginia, Delaware and many others have agreed to follow the tax treatment for HSAs established by the federal government. Make sure you ask your tax advisor for information about HSAs and your state taxes.
Let’s look at how you can use your health savings account money.
Most employers who offer an HSA-qualified high deductible plan will also arrange for their employees to establish a health savings account.
The CareFirst BlueFund program makes this easy. The BlueFund HSA program provides both your health insurance coverage and your HSA administration. After you enroll in the BlueFund HSA health plan, CareFirst will automatically establish your HSA. And, with BlueFund, there are no setup fees and no monthly maintenance fees as long as you remain covered in the BlueFund HSA plan.
Your health savings account is set up with a national HSA leader who has partnered with CareFirst to provide and service your BlueFund HSA.
The funds in your HSA will earn interest in your FDIC insured account. You will have the opportunity to invest your funds in a wide variety of investment opportunities once your account reaches a certain balance. This can be an affordable way to invest for the long term.
Here’s how the BlueFund program works:
You can use your BlueFund debit card or your optional HSA checkbook to pay your providers directly for eligible medical expenses. You can also access cash from your account to reimburse yourself for out-of-pocket medical expenses.
Most employers who offer the BlueFund HSA program will arrange for their employees to contribute to their accounts on a pre-tax basis through payroll deductions.
You can access balance and transaction information about your BlueFund HSA through the CareFirst website. And you can call CareFirst customer service for information and questions about your BlueFund HSA.
The BlueFund HSA program is easy to set up and easy to use. The features and services included in BlueFund are designed to meet all your HSA needs.
Here are some things you should remember when you use your health saving account:
You may use money from your account only to pay for IRS-approved or qualified health expenses.
You can pay for expenses from previous years, as long as your account existed at the time you received the service.
You can use account funds for yourself, your spouse, your children, and other tax dependents. This is true even if they are not covered under the qualified high deductible health care plan.
What happens if you change health care coverage and no longer have a health savings account benefit? In that case, you may keep using the funds in your account, but you can no longer contribute more money.
You can use money from your account to pay expenses such as COBRA premiums and Medicare premiums. You can find more information at the IRS website.
Let’s look at what happens if you use account money for expenses that are not approved by the IRS.
You must use money from your health savings account for expenses that have been defined as “qualified” by the Internal Revenue Service.
What happens if you use your HSA money for expenses that do not meet this IRS standard? If you are under the age of sixty five, the money you have spent is subject to income tax and a ten percent penalty.
If you are over the age of sixty five, you may use your HSA to pay for expenses that are not related to health care. The amount you spend is treated as retirement income. It is subject to income tax, but there is no penalty.
Let’s look at how to access the health savings account funds.
There are several ways to access the money in your health savings account. The most common method relies on a debit card you receive when you open the account.
The card is swiped just like a credit card. You can use it at doctors’ offices, hospitals, dentists’ offices, pharmacies, drug stores, grocery stores, and many other retailers.
Some health savings account plans also offer you checks. You can write a check directly from your account to the provider or drugstore. You can even write a check to reimburse yourself for your out-of-pocket expenses – but be sure to save your receipts.
Some HSA plans also let you go on-line to ask that funds be sent to your regular checking account.
We’ve told you how an HSA works, but sometimes it’s easier to follow an example. Take a look at Sam’s experience in “A Health Savings Account Case Study.”
Sam enrolls in a health savings account that is part of a qualified high deductible health plan. His benefits are for the calendar year, January 1 to December 31. His annual deductible is fifteen hundred dollars.
Sam’s employer contributes five hundred dollars to Sam’s health savings account at the beginning of the year. Sam decides to contribute an additional one thousand dollars throughout the year on a pre-tax basis through payroll deduction.
On February first, Sam has five hundred and eighty three dollars in his account. Five hundred dollars came from his employer, and Sam contributed eighty three dollars in January.
Sam gets the flu and goes to see his doctor. The allowed benefit for this visit is one hundred dollars.
Since Sam has not met his deductible, the one hundred dollars office visit charge applies to his deductible. That means Sam must pay the doctor.
Sam uses his HSA debit card at the doctor’s office and pays the one hundred dollars directly from his health savings account. Sam’s doctor sends the claim to CareFirst so that CareFirst can keep track of Sam’s deductible. Once Sam meets his deductible, CareFirst will begin to pay for Sam’s health care services.
In February, Sam has a routine physical. This preventive care is covered in full by Sam’s CareFirst health plan.
In March, Sam needs to have a prescription filled. The prescription is also subject to the deductible, so Sam swipes his HSA debit card at the pharmacy for the cost of the prescription. This amount is applied towards Sam’s deductible.
By the end of the year, a total of fifteen hundred dollars will have been deposited in Sam’s account. Sam could have decided to put even more money into his account, up to the maximum allowed by the IRS. Any money that remains in the account at the end of the year rolls over to the next year.
If Sam leaves his job, his money goes with him -- including any money his employer has contributed.
Is a health savings account right for you? To make this decision, you must consider your individual circumstances. Look at your benefit needs and your tax situation. Ask yourself these questions:
How much will you pay for insurance?
Is your employer paying part of the cost of your insurance?
Is your employer contributing to your health savings account?
What do you expect to spend on your health care costs?
CareFirst has tools to help you make this decision at www.carefirst.com.
We hope this presentation has given you the information you’ll need to make the right choice for you. When you’re making the decision to chose a health savings account and a high deductible health plan, here are some things to remember:
You will have the same medical coverage as people in HMO and PPO plans.
Since preventive care is covered in full, or subject only to a copay, you can focus on staying healthy.
The plan requires you to be more cost-conscious when you seek medical care.
If you don't expect to use many health care services except for preventive care, you can save money on monthly premiums and still be protected if your health care situation changes.
Health savings accounts are an excellent way to fund your deductible or save for future medical expenses on a "tax-preferred" basis.
You can visit www.carefirst.com to use the tools CareFirst offers to help you make a decision about a consumer directed health plan.
Intro to CDH
Health Insurance Basics
High Deductible Health Plans
Health Savings Accounts
HSA Tax Benefits
Health Reimbursement Arrangements