Introduction A Health Savings Account, or HSA, is a tax-exempt account with a financial institution in which funds accumulate to pay for medical expenses. They were created in response to the rising cost of health care with the intent to give the consumer back the control of their health care costs as part of a movement towards consumer-driven health-care. HSAs also give financial incentives for employers of all sizes to provide health insurance and individual consumers to have health insurance. HSAs allow you to enjoy tax reductions while having affordable health insurance premiums. Overview There are two parts to the HSA concept. Before a health savings account can be opened, a qualified High Deductible Health Plan (HDHP) must be in place to cover the individual or family. An HDHP provides health coverage for an individual or family with an affordable premium. The guidelines for an HDHP are determined by the Internal Revenue Service each year. To determine if your plan qualifies, please contact your health plan representative. The current requirements of an HDHP are as follows:   Deductible Requirements Minimums for Tax Year 2008: $1,100 for Single $2,200 for Family Maximum Contributions Maximums for Tax Year 2008: $2,900 for Single $5,800 for Family   Eligibility Any individual/employee is able to have an HSA so long as their HDHP meets the IRS requirements to be a qualified HDHP. Contributions Contributions can be made by: - Accountholders / Individuals - Employers - Any other third party Contributions are tax-deductible for the accountholder. Employer contributions and employee contributions through a Section 125 Plan are pre-tax. Contributions made to an accountholder’s account belong to the accountholder until the funds are used (please see the Distributions section below). Employer contributions must be made on a comparable basis. Contributions are limited to the lesser of 100% of the deductible or the IRS Contribution Limit. Distributions Funds can be used tax-free at any time for eligible medical expenses. As of age 65, funds can be used for non-eligible medical expenses subject to ordinary income tax without any IRS penalty. Prior to age 65, funds can be used for non-eligible medical expenses subject to ordinary income tax and a ten percent IRS penalty. Upon the accountholder’s death, the assets in the HSA become the property of their named beneficiary. If there is no beneficiary named, the assets go to the accountholder’s estate. - If the beneficiary is a spouse, the HSA may be treated as their own account. - If the beneficiary is a non-spouse, the HSA must be treated as ordinary income for taxation purposes.   Comparison   Question HRA FSA HSA Do the funds belong to the employee? NO YES YES Can the money be invested and the employees earn interest? NO NO YES Can the employees use the funds for things other than medical expenses? NO NO YES Can the employee take the money with them if they switch employers? NO NO YES Do the funds rollover year-to-year? Generally, NO NO YES Who can contribute to the account? Employers Employee Possibly, Employer Employers and / or Individuals