Health is an important part of the employee benefits package, albeit costly. With rising healthcare costs, businesses are looking for alternatives to commonly managed care plans. One option available is a Health Savings Account (HSA).
What is HSA?
HSA is a type of consumer-oriented healthcare account. HSA is a type of health coverage modeled after Archer’s MSA that occurred when President Bush signed into law with the Medicare Modernization Act in 2003.
This is the type of account that allows people to save on qualified medical expenses without taxes.
HSA is open to anyone who is registered with a Qualified High Profit Health Plan (HDHP). Account funds are credited to the account without taxes. Money in the HSA allows you to accumulate in the account and receive interest. When the account holder has qualified medical expenses, this person will withdraw tax-free money for these expenses. Some of the qualified medical expenses include deductions, co-insurance expenses, and flights. Money remains in the account from year to year and just keeps rolling.
HSA belongs to the individual, not to the employers. Any funds deposited into the account, whether by the employer or employee, are employees who can use them for their qualified medical expenses.
Who is eligible for the HSA?
Employers who want to create HSA for their employees must also enroll their employees in HDHP.
To claim HSA, employees:
- Must have coverage via HDHP;
- Do not have insurance through any other health insurance.
- Are not covered by Medicare;
- Cannot be claimed to be dependent on someone else’s taxes.
Anyone can qualify for an HSA regardless of income. There are no revenue lows or highs for the HSA.
Who is not eligible for HSA?
You cannot register for the HSA if you have:
- Flexible Account (FSA);
- Health Reimbursement Account (HRA).
There are some exceptions. Employees may have HSA with HRA or FSA under certain conditions.
HRA and FSA can be used for medical bills ONLY after the minimum annual deductible has been met for HDHP.
The HRA, which is designed to finance post-retirement health care costs, can be used with the existing HSA.
Who can contribute to the HSA?
HSA contributions may be made by the employer, employee, or through a common contribution through both parties. Contribution may also be made by a third party on behalf of the employee. Employees can also make a one-time transfer from their IRA to their HSA. Anyone who is self-employed, a partner or share of S-Corporation, is not considered employees of the company and cannot receive an employer contribution. They can open HSA, but it must be self-financing.
If an employer contributes to the HSA, they can do this in several ways:
- Contributions can be made through salary reductions through a pre-tax cafeteria plan 125;
- The employer can automatically make contributions through the cafeteria plan on behalf of the employee.
However, some rules apply. If the employer makes a contribution or any part of the contribution to the HSA, then this part is not taxed by the employee as income or wages. In addition, contributions must stop as soon as a person enters any type of Medicare plan.
Remember that as soon as the employer pays the money to the employee’s account, any money is considered employees, even if they leave the company on a voluntary or compulsory basis.
The person belongs to the account and decides how the money is allocated for medical expenses and invested while working with the company, and as soon as the person no longer works for the company.
Can I use the money in HSA for anything else?
The amount deposited in the HSA should be used for qualified costs associated with HDHP. Costs should be kept in a safe place. If an employee needs to withdraw HSA money, it is similar to fines for withdrawing from the IRA before the deadline. The amount withdrawn is subject to income tax, plus a 10% penalty.
What if I need medical help in another country? Can I use my HSA money?
Yes, your HSA money can be used for the same medical expenses anywhere in another country.
What happens to the money in your HSA when you die?
You will not lose your money. You can name the recipient to receive money into a savings account.