Health Savings Accounts (HSAs) allow individuals with a high deductible health plan to contribute pre-tax funds to pay for qualified medical expenses. To be eligible, one must have an HDHP with minimum annual deductibles of $1,150 for individuals or $2,300 for families in 2009. Contribution limits are $3,000/$3,050 for individuals and $5,950/$6,150 for families in 2009/2010. Funds can be used to pay medical expenses like deductibles, co-pays, and certain insurance premiums. Both employees and employers can contribute to the same HSA each year.

1. Health Savings
Accounts
Health Savings Accounts
What They are and
How to Use Them

2. Health Savings Accounts
Outline
• Definition of an HSA
• Individuals Eligible to Contribute to an HSA
• Requirements of an HDHP
• Contribution Limits
• Reimbursable Expenses
• IRS and Legislative Clarification of HSAs
• Comparison of HSAs, MSAs, HRAs, and FSAs

3. Health Savings Accounts
Definition of a Health Savings Account
• Medicare Prescription Drug, Improvement and
Modernization Act of 2003
• Effective January 1, 2004
• Tax exempt trust owned by the individual
• Used to pay for qualified medical expenses
• Modeled after Archer MSAs

4. Health Savings Accounts
Individuals Eligible to Contribute to an HSA
• Covered by a high deductible health plan as of first day
of month
• Not also covered by another health plan that is not a
high deductible health plan (with some exceptions)
• Individuals covered by an FSA which includes a 2½
month grace period can be eligible to contribute to
HSA the following year if:
– Have a zero FSA balance at end of plan year, or
– Transfer unused balance into HSA at end of FSA plan year

5. Health Savings Accounts
Individuals Eligible to Contribute to an HSA
• Cannot be a dependent on another tax return
• Cannot be entitled to Medicare benefits
• Shareholders in an S-corp are eligible
• Contributions can be made by employees through a
cafeteria plan or on their own (tax deductible)
• Employers

6. Health Savings Accounts
Requirements of an HDHP
Type of Minimum Annual Maximum out of
Coverage Deductible pocket
expenses*
Single $1,150 / $1,200 $5,800 / $5,950
Family $2,300 / $2,400 $11,600 / $11,900
*Includes the deductible
Figures reflect 2009 / 2010 calendar years and are adjusted annually (by June 1st).

7. Health Savings Accounts
Requirements of an HDHP
• May not pay benefits until the deductible has been
satisfied, except for preventive care
• Prescription drug coverage must be subject to the
deductible
• Network plans are not required to comply with the
deductible and out-of-pocket requirements for out-of-
network services
• Embedded deductibles are not permitted under family
coverage unless they meet HSA requirements

8. Health Savings Accounts
Requirements of an HDHP
OR
Medical Expenses
Medical Expenses
$2,300 $1,300 $400 $600

9. Health Savings Accounts
Contribution Limits
• For each month covered under an HDHP, an eligible
individual may contribute 1/12th of $3,000 / $3,050 for
self-only coverage and 1/12th of $5,950 / $6,150 for
family coverage*
• Individuals who are eligible to contribute to an HSA in
the last month of a taxable year can contribute an
amount equal to the annual HSA contribution amount
• HSA contribution limit is reduced by any contributions
made to an MSA in the same year
*2009 / 2010 amounts; HSA contributions do not have to be made in equal
amounts each month and can be made in a lump sum

10. Health Savings Accounts
Contribution Limits
• If an employer contributes to the HSA account, it must
make comparable contributions for all participating
employees*
• However, an employer may exclude “highly
compensated employees” (as defined by the IRS)
when determining whether contributions are
comparable
• Thus, an employer can make greater HSA
contributions to lower wage employees
*Does not apply to employer contributions made through a cafeteria plan

11. Health Savings Accounts
Contribution Limits
• Catch-up contributions  Individuals age 55 and older
by the end of the taxable year may contribute an
additional $1,000 to their HSA in 2009 and beyond
• Rollover contributions can be accepted from another
HSA or MSA and are not subject to the annual
contribution limit

12. Health Savings Accounts
Contribution Limits
• Can make a one time transfer of an employeeʼs Health
FSA or HRA balance to an HSA, not subject to the
annual contribution limit
• Employees can make a one time rollover from an IRA
to an HSA, but it does apply to the annual contribution
limit

13. Health Savings Accounts
Contribution Limits
• Both the employee and employer may each contribute
to the HSA in the same year
• Contributions which exceed the limits are subject to an
excise tax and regular income tax (not including
appropriate rollover amounts)

14. Health Savings Accounts
Reimbursable Expenses
• Qualified medical expenses for account beneficiary,
spouse, or dependents
• Qualified medical expenses as defined in 213(d)
– COBRA premiums
– health insurance while receiving unemployment insurance
– qualified LTC premiums
– Any health insurance premiums paid, other than Medicare
supplemental policies, by individuals age 65 and over

15. Health Savings Accounts
Clarification of HSAs
• The IRS continues to issue guidance regarding HSAs.
This can be found on the United States Treasury
Website: http://www.treas.gov/offices/public-affairs/
hsa/technical-guidance/
• Further, when new HSA related legislation is passed,
the legislation can be found on the Treasury Website:
http://www.treas.gov/offices/public-affairs/hsa/
index.html

16. Health Savings Accounts
Clarification of HSAs
• The Treasury Website is also a great place to look for
press releases and consumer friendly government
materials regarding HSAs: www.treas.gov/offices/
public-affairs/hsa/

17. Health Savings Accounts
Comparison of HSAs, MSAs, HRAs, and FSAs
• Employer and employee can contribute in the same
year
• May contribute $3,000 / $3,050 for individual coverage
and $5,950 / $6,150 for family coverage in 2009 / 2010
• HSA has lower deductibles, no maximum deductible
• No substantiation requirement
• No penalty if withdrawals are due to death, disability, or
if made after eligible for Medicare