Health Savings Accounts (HSAs) are tax-exempt accounts where funds grow to pay for medical expenses. They were created to help give control back to consumers and lower healthcare costs. HSAs provide a financial incentive for consumers to select a High Deductible Health Plan (HDHP). HDHPs have lower monthly premiums than traditional plans. The HSA/HDHP combination provides consumers with more incentive to shop carefully for healthcare services.

An HSA is your account. If you switch jobs, the HSA goes with you. Your money rolls over every year. There is no "use it or lose it" requirement.

In order to open an HSA, you must have a qualified High Deductible Health Plan. The IRS determines the guidelines for qualified HDHPs. The current IRS guidelines are:

When you have a qualifying HDHP, the following contribution guidelines apply.

• Anyone can contribute to your HSA.
• Your contributions are tax deductible.
• If your employer contributes to your HSA, that contribution is done on a pre-tax basis.
• Any pay-roll deductions made through Section 125 for your HSA are also on a pre-tax basis.
• You may contribute the annual maximum amount as determined by the IRS, regardless of your plan’s deductible. The maximum for 2010 and 2011 is $3,0500 for individuals and $6,150 for families.
• You may contribute the annual maximum amount determined by the IRS, regardless of when your coverage begins, if you maintain coverage for the 12 month period beyond the calendar year in which you first became eligible. The maximum for 2010 and 2011 is $3,050 for individuals and $6,150 for families.
• Your employer may roll over funds from your HRA or FSA account once, according to the legislative provisions.

Here are some key points about distributions:

• You can use your money tax-free at any time for eligible medical expenses.
• When you turn 65, you can use the money for non-eligible medical expenses. The money is subject to income tax, and there are no IRS penalties.
• If you are under age 65 and use your money for non-eligible medical expenses, you will be subject to income tax and a 10% tax penalty.

Authorized by the Internal Revenue Service through Revenue Ruling 2002-41 and IRS Notice 2002-45, Health Reimbursement Accounts (HRAs) are employer funded accounts which may be offered in conjunction with High Deductible Health Coverage (HDHC) or as a stand alone plan to reimburse certain qualified out-of-pocket medical expenses including insurance premiums incurred by an employee or former employees (including retirees).

To implement an HRA you must have a written plan document in force. In addition, you are required to provide each employee with a Summary Plan Description. A Summary Plan Description (SPD) is a summary of the Plan Document. Considered a self-insured health plan, you must annually pass non-discrimination testing to remain in compliance with Plan requirements. As a self-insured Health Plan both COBRA and HIPAA will apply.

Any type of an employer can offer a HRA to its employees. However, 2% or more owners of an S-Corporation, Partners in a partnership and Sole Proprietors are not eligible to participate in their company's plan.
Carryovers: Permitted

If you have 100 or more participants in your HRA as of the beginning of a plan year, you will have to file a Form 5500 return.

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.

Funds deposited into your HSA remain in your account and automatically roll over from one year to the next. You may continue to use the HSA funds for qualified medical expenses. You are no longer eligible to contribute to an HSA for months that you are not an eligible individual because you are not covered by an HDHP. If you have coverage by an HDHP for less than a year, the annual maximum contribution is reduced; if you made a contribution to your HSA for the year based on a full year’s coverage by the HDHP, you will need to withdraw some of the contribution to avoid the tax on excess HSA contributions. If you regain HDHP coverage at a later date, you can begin making contributions to your HSA again.

Yes, the unused balance in a Health Savings Account automatically rolls over year after year. You won’t lose your money if you don’t spend it within the year.

You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-
medical expenses must pay income tax and a 10% penalty on the amount withdrawn.