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HSA Basics

 

What is an HSA?

Health Savings Accounts (HSAs) are tax-exempt trusts or custodial accounts, similar to an IRA.

The money deposited into an HSA account is 100% tax-free and can be used to pay for qualified medical expenses. Any money that isn't used remains in your account and keeps growing on a tax-favored basis to cover future medical expenses or to supplement retirement.

What are the advantages of an HSA?

HSAs encourage savings for future expenses, such as medical, out-of-pocket and long-term care expenses.

  1. Accounts are owned by the individual, not the plan or employer.
  2. Accounts are completely portable, regardless of the individual's employer, employment status, area of residence, age, marital status or future medical coverage.
  3. There is no requirement to use unspent balances within a specific timeframe, unlike a Flexible Spending Account (FSA).
  4. Accounts grow through interest and investment earnings.
  5. All contributions are made to your account pretax.

Contributions to your HSA

  1. MHBP will contribute up to $845 for self-only coverage, or up to $1,690 for family coverage per year to your HSA.
  2. Plan contributions are made in monthly increments of $70.41 for self-only coverage, or $140.83 for self and family coverage.
  3. You may make a contribution to your HSA each month you're eligible, up to $2,055 (self-only) or $4,110 (self and family) each year.
  4. Your contribution may be made in one lump sum at the beginning of the coverage year, or paid out in different increments throughout the course of the coverage year. Your eligible family members may also contribute to the account on your behalf.
  5. For 2008, the maximum annual contributions to your HSA (plan contributions and your contributions combined) are:

    $2,900 for self only or $5,800 for self and family coverage. These amounts will be increased for inflation in future years.
  6. Please note - you are responsible for keeping track of your contribution totals, which must not exceed the IRS limit.

How does my HSA work?

  1. You can choose to use your HSA funds to pay for qualified medical expenses such as office visits, lab work and prescription drugs while you are meeting your annual deductible. Expenses you incur for services covered under your health plan will count toward your annual deductible.
  2. You may also choose to use your HSA funds for qualified services not covered by the health plan, such as dental care, weight loss programs and eyeglasses. However, expenses that are not covered by your health plan will not count toward your annual deductible.
  3. If you prefer, you can choose to save any or all of your HSA funds, and pay for your medical expenses out of pocket throughout the year, until you meet your annual deductible.
  4. Once you've met your deductible, additional health care expenses are covered under the terms of your medical plan. You can choose to use your HSA funds to pay for fixed expenses, such as copayments.
  5. If you don't use all of your HSA dollars, the remaining amount will carry over into the next year. Please check the Official Plan Brochure for more information about your HSA.

Who is qualified to participate in an HSA?

  1. Only people covered by a high-deductible health plan (HDHP) can participate in an HSA.
  2. Those who are eligible for Medicare cannot actively participate in an HSA, although HSA funds that have accrued prior to that time may be used to pay for qualified medical expenses without being taxed.
  3. An individual who may be claimed as someone else's dependent cannot participate in an HSA.
  4. Generally, a person with an HSA cannot be covered under any other health plan. However, the legislation provides exemptions for certain types of "permitted" (generally limited) health coverage such as that provided under state workers' compensations laws, property insurance, insurance for a specified illness, and hospital indemnity insurance. A health reimbursement arrangement (HRA) or flexible spending account (FSA) limited to these types of benefits may still be offered alongside an HSA. In many cases, members would like use the FSA for dental.
  5. If you have enrolled in the MHBP Consumer Option and you do not qualify for an HSA, the plan will open a Health Reimbursement Arrangement (HRA) for you.

How do HSA contributions work?

  1. HSAs are "above the line" deductions, meaning the deduction is always available and is not dependent on earnings, tax-filings status, employment status or whether or not you itemize tax deductions. Interest earnings inside the HSA account are not taxed.
  2. Distributions taken from an HSA are tax free if they are taken for qualified medical expenses incurred by the person covered under the HDHP, their spouse or their dependents.

    It can be used to pay for other health insurance except:

    • COBRA premiums for the continuation of health care benefits
    • Health coverage while receiving unemployment compensation
    • Medicare premiums and out-of-pocket expenses
    • Long-term care insurance
  3. Members between the ages of 55 and 65 can make additional pretax "catch-up" contributions of $900 for 2008. This contribution amount will increase by $100 yearly until 2009, when the amount will top off at $1000.
  4. If you make your maximum annual contribution early in the coverage year, and then you leave your employer before that coverage year has ended, you will be responsible to pay the taxes on any amount that exceeds the coverage.

What counts as a "qualified medical expense?"

The Internal Revenue Service has defined qualified medical expenses in a very broad way, to include "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body." Based on that definition, qualified medical expenses include many services from acupuncture to dental procedures to weight-loss programs. Prescription and non-prescription (over-the-counter) medications are included as well. However, expenses that are merely beneficial to general health, such as vitamins or vacations, do not qualify. In general, health insurance premiums do not qualify either.

Dost this plan work like a traditional PPO plan?

The Consumer Option does provides traditional PPO-style coverage. The difference is that it comes with a higher deductible and is paired with a health savings account that offers tax advantages. The deductible applies to most services. Plus, you receive monthly deposits to that account from the MHBP.

What happens when I go to my first doctor visit?

You should not use your HSA Visa debit card at the doctor’s office. To ensure that you receive the PPO discount, tell your doctor's office to bill MHBP first. We will apply the appropriate discount. When you get the bill, you can simply fill in your debit card number as a form of payment and the funds will be taken out of your HSA to pay for the covered medical expense. Once you reach your deductible and are eligible for PPO benefits, you can simply pay your co-payment at a PPO doctor using your debit card.

How is an HSA different from a Flexible Spending Account (FSA)?

An FSA is a "use-it-or-lose-it" account. You fund it with a specified amount of money, tax-free, and if you don’t use that money by the end of the year, you lose it. In addition, you cannot earn interest on the money in an FSA. The money in an HSA, on the other hand, is yours to keep, year after year, to spend as you wish on qualified medical expenses (or even for other expenses, with tax and penalties). You can earn tax-free interest on money in your HSA.

What would happen to the money in my HSA should anything happen to me? Would my family be able to keep it? Would they have to pay taxes?

Your HSA is like any other investment account in this way; you name a beneficiary, and any money remaining in your account goes to that person should you pass away.

What happens after I turn 65?

If you enroll in Medicare, you can no longer make contributions to your HSA; however, you can continue to withdraw money tax free for qualified medical expenses. And when you’re 65, you can even withdraw money for non-medical expenses and pay only your current income tax rate.

Am I eligible for an HSA if I’m enrolled in TRICARE or Medicare?

You cannot be covered by TRICARE or Medicare or by another traditional health plan, such as a spouse’s employer-sponsored coverage.

What if my spouse and I both have HSA-eligible High Deductible Health Plans?

You can have an HSA, but the total amount you can contribute each year will depend on the IRS Defined Limits. The total amount you can collectively contribute each year must not exceed this statutory limit--$2,900 Self Only coverage and $5,800 Self and Family for 2008.

 

This is a summary of the Mail Handlers Benefit Plan. For a complete description of all benefits, please see the Plan's official OPM-authorized brochure (RI71-007). All benefits are subject to definitions, limitations and exclusions set forth in the official plan brochure.