How Do Health Savings Accounts (HSAs) Work?
Health savings accounts (HSAs) have been around for nearly a decade. Having had significantly changed in the recent past, HSAs have adapted to the marketplace to fulfill Americans’ health care needs. As a result, both the number of HSAs, and the dollars in them, has risen sharply over the last nine years! With most of the key provisions of the Affordable Care Act (ACA) effective on January 1, 2014, a whole new segment of the population stands to benefit from HSAs. Under the new law, HSAs will grow faster than they have ever grown. This new growth will provide credit unions the opportunity to bring in new accounts, new customers, and new noninterest revenue. So, do how well do you know HSAs?
HSAs are a tax-deferred savings account designed to pay the qualified medical expenses of the HSA owner, the HSA owner’s spouse, and dependents. Below are the eligibility requirements of an HSA-eligible individual.
- covered by a high deductible health plan,
- not covered by another health plan that is not an HDHP,
- not enrolled in Medicare, and
- not eligible to be claimed as a dependent on another person’s tax return
For an HDHP to be HSA-eligible, they must meet the following requirements.
- For 2014, the HDHP must have minimum deductible of $1,250 for self-only coverage and $2,500 for family coverage.
- For 2014, the out-of-pocket expense maximum (which includes most everything but insurance premiums) cannot exceed $6,350 for self-only coverage and $12,700 for family coverage.
HSAs also have restrictions and requirements. For 2014, the contribution limits for HSAs are $3,300 for self-only coverage and $6,550 for family coverage, which includes contributions from individuals and employers. Only distributions for qualified medical expenses are tax-and penalty-free; nonqualified distributions are subject to tax and an additional 20 percent penalty tax.
While HSA benefits range far and wide, one major benefit is that balances carry over from year to year, unlike flexible spending accounts or cafeteria plans. All unused dollars still in the HSA at the end of the year remain in the account and may be used for future qualified medical expenses. Account owners have been able to accumulate substantial balances over the years.
Stay tuned for part two as we discuss the future of HSAs. If you would like to learn more about HSAs, join me at the 2014 NAFCU Annual Conference as I speak on “ObamaCare + Health Savings Accounts = Opportunity.”