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affordable individual health insurance
hsa health plan

Disclaimer: This is a good faith summary, not tax advice, and while believed to be accurate, is not guaranteed to be accurate. Please consult a tax advisor or official publications such as those listed at the end of this article.

hsa plan

Maximum Contributions

Allowable health insurance plan deductibles and maximum contribution amounts are adjusted annually for inflation.

For year 2009:
You can contribute for 2009 up until April 15, 2010.

Deductible for an individual: The plan must have a minimum deductible of $1,150, with a maximum out-of-pocket including deductible, of $5,800 in-network. (out-of-network may have additional deductible and coinsurance).

Contributions by an individual: Up to $3,000 for the 2009 calendar year irrespective of what the deductible is.

Deductible for a family: The plan must have a minimum deductible of $2,300, with a maximum out-of-pocket including deductible, of $11,600 in-network. (out-of-network may have additional deductible and coinsurance).

Contributions for a family: Up to $5,950 for the 2009 calendar year irrespective of what the deductible is.

If over age 55, an individual may contribute an additional amount of $900 for year 2008 to a health savings account. For 2009, the additional contribution allowed is $1,000.

For year 2010 and 2011:
Deductible for an individual: The plan must have a minimum deductible of $1,200, with a maximum out-of-pocket including deductible, of $5,950 in-network. (out-of-network may have additional deductible and coinsurance).

Contributions by an individual: Up to $3,050 for the 2010 calendar year irrespective of what the deductible is.

Deductible for a family: The plan must have a minimum deductible of $2,400, with a maximum out-of-pocket including deductible, of $11,900 in-network. (out-of-network may have additional deductible and coinsurance).

HSA cost

Contributions for a family: Up to $6,150 for the 2010 calendar year irrespective of what the deductible is.

If over age 55, if not on Medicare, an individual may contribute an additional amount of $1,000 for year 2010 to a health savings account.

Deadlines

If your tax year is the calendar year, then provided you have an HSA-qualified plan in effect by December 1, you are entitled to make the maximum contribution for that calendar year. However, you must remain covered under an HSA-qualified plan for at least twelve months or income tax and a penalty will apply to what you have deposited.

The Department of the Treasury says this about contributions:
"... For 2007 and forward, if you are covered on December 1, you are treated as an eligible individual for the entire year. However – if you cease to be an eligible individual during the following year, the excess over the pro-rated contribution is included in income and subject to a 10 percent additional tax.

  The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account.

  ...If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month)." HDHP means 'high deductible health plan'.

The law does not mandate a minimum contribution, but the financial institution where you open the account may require a minimum and may charge a minimum monthly service charge if your balance is below a certain figure. Shop around until you find what you want.

For any given year, contributions can be made at any time, in any amount, up to the date the tax return is due with no extension, e.g., April 15 of the following year for most taxpayers.

Overview

If you do pay for any expenses out of an HSA, you can not also itemize that same payment on Schedule A.

Itemizing expenses on Schedule A on your tax return is not the same as an HSA deduction because itemization has a threshhold of 7.5% of Adjusted Gross Income to meet first. In addition, HSA has a deduction for depositing whereas itemization is a deduction for spending.

Money paid out of the health savings account for qualified expenses is never taxed. "Qualified" means what is allowed by the Internal Revenue Code.

health savings account HSA

Regular health insurance premiums are not allowed to be paid for out of the account. However, after the age of 65, premiums for Medicare parts A, B, C, and D and employer retiree health insurance become additional qualified expenses that can be paid for out of the account. Medicare Advantage plans are part C, so the premiums for those plans can be paid by an HSA account. However, premiums for Medicare supplement a.k.a Medigap plans can not be paid for out of HSA funds. If you would like to find out more about Medicare Advantage plans, please call us at 1-800-722-9053 for assistance.

HSA funds can be used to pay for the following health insurance premiums:

• COBRA
• for the period when receiving unemployment benefits
• if over age 65 and not on Medicare

They can also pay for qualified long term care insurance.

Once you have an HSA-qualified policy, you can set up a health savings account any time you want, or not at all. It is not mandatory to have a health savings account just because you have coverage that qualifies for it. You may want this type of plan even if you have no use for a health savings account.

A health savings account could also be used as an additional retirement vehicle if other retirement plans are not enough to handle all the retirement contributions you want to make. The tax deduction and tax free compounding are there and any medical expenses could be paid out of non-HSA funds to maximize the amount of tax-free compounding. This use of an HSA is possible because the tax deduction is for contribution, not for spending.

HSA's are not limited to interest bearing accounts. They can be in a brokerage account or mutual funds depending on the institution providing the account (see link to banks at top). Even though your insurance is with a particular insurance company, the bank account can be with any authorized financial institution.

So there is great flexibility with HSA qualifying health insurance. Have an account or don't have an account. Save or don't save. Save towards meeting the deductible or towards retirement or save nothing. Contribute only when there is an expense to pay, and otherwise keep a low balance, or not. Within the specified annual limits, contribute whatever you want whenever you want. Have an interest-bearing account, or mutual funds, or have a brokerage account, or whatever else is available. It's your choice.

Health Savings Account Plan

You can maintain a minimum balance and wait until there is a significant qualifying expense and only then deposit the amount of the expense. When the bill is paid, your account returns to the minimum balance required by the institution where you have the account. The qualifying policy and account must be in effect before the expense is incurred to be able to pay for it out of the account.

Under the Internal Revenue Code, the account does not have to be funded, but the financial institution may have initial setup fees, maintenance fees, and may impose a minimum balance. Financial institutions can set rules for the accounts they provide. Some may have no fees, some may have higher fees than what you want to pay.

Eligibility

An HSA can be opened by anyone not entitled to Medicare, who is insured by a high deductible health plan that meets the required parameters and who is not covered by other comprehensive health insurance. You could have additional limited benefit insurance such as those that pay a specified amount per day for hospitalization, or for specific diseases.

Since most people are eligible for Medicare at age 65, few people over age 65 are entitled to open or contribute to an HSA. However, if you already have one and turn 65, you can keep it and use funds previously deposited to pay for qualified expenses.

Any minor who is claimed as a dependent on the tax return of another is not eligible to have an HSA. Any person with an HSA can pay for the qualified expenses of an immediate family member out of the account.

If a spouse is the designated beneficiary for an HSA, then at the death of the account holder, the HSA is then owned by the spouse, without tax consequences as a result of the transfer. If anyone other than the spouse is the designated beneficiary, the HSA is terminated upon the death of the account holder and the beneficiary is deemed to receive taxable income in the amount of the account balance. The funds in the account become part of the deceased's estate if a beneficiary is not designated.

More information

U.S. Dept of Treasury:   HSA Health Savings Accounts FAQS

Health Savings Account BasicsAll about HSA's

I.R.S.:   I.R.S. Publication 969 explanation

I.R.S. Publication 502 qualified expenses for itemization  The health care expenses listed here are mostly the same as for an HSA but there are differences, e.g., premium for health insurance can be itemized but can not be paid for out of an HSA account (for exceptions, see FAQS link above, then see 'Using Your HSA').

Articles:   HSA Setup   HSA Summary   HSA or no HSA?

HSA Banks   HSA Simplified

HSA account

HSA-qualified Quotes (select 'HSA' under 'Plan Type' in the quote results)