About HSA Plan

HSA Plan

Health Savings Accounts (HSAs) were created by the Medicare bill signed by President Bush on December 8, 2003 and are designed to help individuals save for future qualified medical and retiree health expenses on a tax-free basis.

An HSA is an individual IRA type account that is established by an eligible individual to pay for qualified medical expenses. The HSA stays with the account holder when changing jobs and upon retirement. It is a healthcare reimbursement account that rolls forward, is portable, and can be offered through a Section 125 Cafeteria Plan.

Who can Establish a Health Savings Account?

  • An individual covered by a High Deductible Health Plan (HDHP)
    • HDHP is defined by the IRS, the plan has minimum deductibles, limits on out of pocket expenses, and the plans can have NO first dollar benefits except for wellness.  Cost of living adjustments (COLAs) are made annually to the minimum deductible and out of pocket limits.
  • An individual under age 65
  • An individual who is not claimed as a dependent on another person's tax return
  • An individual who is not also covered by a low deductible health plan, except for certain permissible benefits
  • Special Rules apply for married couples  - see Forms and Documents above

Benefits of a Health Savings Account

  • Amounts in the HSA build up on a tax-free basis
  • HSA deposits can earn interest
  • Distributions for qualified medical expenses are not taxed
  • HSA's are owned by the individual. They are portable and can be passed on to your beneficiary in the event of your death
  • Long term care premiums can be paid from your Health Savings Account


  • If an employer contributes toward an HSA and/or offers the HSA under a Cafeteria Plan the employer gets a deduction
  • Amounts contributed are excluded from the employee's taxable income, up to certain limits (see above – HSA Contributions)
  • Amounts in the HSA build up on a tax-free basis

Note: Excess Contributions may be assessed a 6% excise tax unless the excess contribution and any net income are returned to the individual before the last day of the period for filing the individual's tax return.

How an HSA is different than a FSA & HRA:

Can small employers implement?

Can large employers implement?

Can C-Corp owners Participate?

Can self-employed participate?

Is a plan document necessary?

Are employer contributions allowed?

Are employee contributions allowed?

Can unused funds be rolled to the next year?

Is the account pre-funded by the employer?

Can insurance premiums be paid from the account?

Do HIPAA Privacy and Security Rules apply?









HSA Contributions

  • Contributions can be made by the employer or employee "pre-tax"
  • Contributions to a HSA must be held by a qualified custodian
  • Maximum contribution limits are set by the IRS and have annual cost of living adjustments (COLAs)
  • Individuals over age 55 can make additional "catch up" contributions of $1,000. Amounts are doubled is the account holder is married and both spouses are 55 years of age.
  • Employer contributions must be "comparable" in order to be excludible from income
  • Medicare individuals cannot make contributions to an HSA

HSA Distributions

  • Distributions from the HSA are excludable from income to the extent that they are used for "qualified medical expenses." A "qualified medical expenses" is generally an amount for medical care as defined in Code Section 213(d), examples of which are on the opposite page. These expenses include medical care for the account holder, and their spouse and dependents.
  • Health insurance may not be purchased from the HSA, except for COBRA continuation premiums or for health insurance coverage while an individual is receiving unemployment compensation.
  • Long-term care insurance premiums may be paid from the account and at the individual's retirement age, any health insurance premium may be paid with HSA funds (with the exception of a Medicare supplement).
  • If a distribution is made from the HSA for other than a qualified medical expense, the distribution is included in the account holder's gross income and is generally subject to a 10% penalty. Effective January 1, 2010 the penalty increases to 20%.