SAVINGS ACCOUNTS (HSAs)
“A Simple Solution
to a Taxing Problem!”
A Health Savings Account (HSA) is a tax-favored
savings account used to pay qualified medical expenses.
The employer and/or employee contribute money to
the account, which accumulates, earning tax-free
interest, for future use to pay for qualified expenses.
If funds are used for non-qualified expenses prior
to age 65 (or death of the account holder) a penalty
of 10% plus ordinary income tax applies.
HSA belongs to the individual employee on whose
behalf it is opened, and is portable to the extent
an employee changes jobs, becomes unemployed,
etc. HSA funds used to pay for eligible medical
expenses are not taxed! Employees can make pre-tax
or tax deductible HSA contributions, subject to
specified maximums. Employer HSA contributions
are exempt from payroll related taxes. Funds remain
in the account holder’s control, and NEVER revert
to the employer if unused.
In order to establish an HSA and take advantage
of the tax savings, a qualified high deductible
health insurance plan must be established. The
high deductible plan, usually significantly less
expensive, and much easier to understand than
traditional health plans, acts as a safety net
and covers eligible expenses that are beyond the
• Tax deductibility of HSA contributions [Note:
contributions are pre-tax or tax deductible.]
• Reduce insurance premiums through the accompanying
qualified high-deductible plan.
• Tax-free interest on HSAs account fund build
• Funds to pay for qualified medical expenses
(including many expenses not covered by traditional
insurance plans) through the HSA account.
• Funds available to pay for health insurance
in between jobs.
• Funds can be used to supplement retirement without
penalty at age 65. Funds can also be used to purchase
Long Term Care insurance.
• Generally lower health care out of pocket expenses
• Personal freedom of choice of healthcare provider
with lower non network penalties.
• Contributions are limited to 100% of the annual
deductible, which for 2007 is $2,850 for INDIVIDUALS
and $5,650 for FAMILIES.
• Excess contributions are subject to a 6% excise
tax plus ordinary income tax.
• Contribution limits increase each year according
to federal law.
• Account holders age 55 and older are allowed
to make “catch up” contributions of an additional
$800 per year (2007), increasing by $100 each
year until 2009 when it will be $1,000.
HSA’s are the result of the evolution of Medical
Savings Accounts (MSA’s) which became available
in 1997. Health Savings Accounts (HSAs), which
replaced MSAs, are available to virtually anyone,
and represent one of the few tax breaks available
today for small businesses and the self-employed.
There are several advantages of the HSA over other
tax favored spending arrangements such as Flexible
Spending Accounts (FSAs) and Health Reimbursement
Arrangements (HRAs). Key to effective introduction
of HSAs and the required high deductible plan
is a knowledgeable and experienced benefits broker,
who can not only educate the employers, management,
owners, etc., but more importantly, the employees
who will benefit from this exceptional healthcare