Health Savings Accounts
HSA contributions can come from the employee, employers or both… all in the same tax year as long as it does not exceed the IRS maximums. 2016: maximum contribution for individual is $3,350; $6,750 if family. The catch up contributions for 55 + is an additional $1,000, so $4,050 for individual, $7,150 for family. Employer contributions must be “comparable” for all employees participating in the HSA. However, to open and contribute to a HSA, you must have coverage under an HSA-qualified “High Deductible Health Plan.”
The High Deductible Health Plan (HDHP)
The HDHP features lower premiums and higher annual deductibles than other traditional health plans. In 2016, a minimum of $1,300 for single coverage and $2,600 Family coverage. The maximum out-of-pocket limits for HDHPs in 2016 are $6,550 for single coverage and $13,100 for family enrollment based on IRS rules. Depending on the HDHP you choose, you may have the choice of using in-network and out-of-network providers. Using in-network providers will save you money. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. Preventive care services are generally paid as first dollar coverage or after a small deductible or copayment. A maximum dollar amount (up to $300, for instance) may apply.
Additionally, to participate in an HSA, employees cannot be enrolled in Medicare, cannot be claimed as a dependent on someone else’s tax return and cannot have other “first dollar” medical coverage such as specific injury or accident insurance, disability, dental or vision care, or long-term care insurance. Spouses must have a separate HSA — they are individual only accounts, not joint accounts.
Contributed funds are available immediately for use. HSAs may be available under a cafeteria plan, allowing employees to contribute to an HSA with pre-tax salary reductions. Funds can be used to pay for COBRA during an employee’s unemployment.
HSA funds can be used to cover qualified health insurance expenses, as well as for non-qualified purposes. Non-qualified expenses are subject to taxes and a 10% penalty, until age 65 when there is no longer a 10% penalty applied. Upon death, an HSA will pass to the beneficiary or become part of the estate (and will be subject to any applicable taxes.)