Health Savings Account (HSA) Basics
- What is a Health Savings Account (HSA)?
- Who is eligible for an HSA?
- What can HSA funds be used for?
- What happens to money left over at the end of the year?
- What happens if I change jobs?
- How do I change beneficiaries on my HSA account?
- When will I receive statements for my HSA?
- When will I receive year-end tax statements for my HSA?
- Does The Principal save receipts for Qualified Medical Expenditures?
For additional HSA information, visit the US Department of the Treasury HSA site.
What is a Health Savings Account (HSA)?
An HSA is a tax-advantaged trust or custodial account created for the benefit of an individual covered under a qualified High Deductible Health Plan (HDHP). An HSA empowers you to determine the best use of some of the money you once may have simply spent for health coverage. The money in the HSA belongs to you, not your employer, which means it is always yours to use - even if you take another job or retire. Plus, if you are able to accumulate funds in your HSA, it can transfer tax-free to your spouse at time of death.
The contributions to your HSA are not subject to federal income tax. The money you contribute is often referred to as "pre-tax" dollars. The funds in the account can grow on a tax-favored basis; that is, they earn interest or other investment returns, which are not taxed if used for qualified medical expenses.
Who is eligible for an HSA?
The great news is that most people can be eligible for an HSA, provided they meet a few simple requirements. When filling out your HSA enrollment form, you will be asked to certify that you are eligible to participate in an HSA.
You must be covered under a qualifying High Deductible Health Plan (HDHP).
For 2007, a qualified HDHP is medical coverage with the following characteristics:
- Self coverage: minimum deductible of $1,100 and out-of-pocket limit not to exceed $5,500
- Family coverage: minimum deductible of $2,200 and out-of-pocket limit not to exceed $11,000
- Self coverage: minimum deductible of $1,100 and out-of-pocket limit not to exceed $5,600
- Family coverage: minimum deductible of $2,200 and out-of-pocket limit not to exceed $11,200
- You cannot be covered under any other type of medical benefit program that is not a qualifying HDHP. This also means you cannot be covered as a dependent under someone else's medical coverage that is not a qualified HDHP.
- Do not confuse your medical coverage with other types of insurance that you are permitted to have and still be eligible for a Health Savings Account. Coverages such as liability, worker's compensation, property and casualty insurance, insurance for specific diseases and illnesses, or insurance that pays a fixed amount per day of hospitalization are all permitted.
- You are also permitted to have coverage through insurance or other arrangements for accidents, disability, dental care, vision care, and long-term care.
- You cannot be covered under any other type of health benefit that covers some of the medical expenses that are covered by a qualified HDHP. For example, a medical Flexible Spending Account (FSA) will pay for some of the same expenses, so you cannot use an HSA and a medical FSA in combination.
- "Limited FSAs" that do not cover medical expenses but only apply to dental and vision expenses have been developed specifically for use with HSAs and are allowed.
- You cannot be enrolled in Social Security Medicare. Once enrolled in Medicare, you can no longer make HSA contributions. However, if you have an existing HSA and enroll in Medicare, you can still use the money you have already accumulated in your HSA.
For 2008, a qualified HDHP is medical coverage with the following characteristics:
What can HSA funds be used for?
HSA funds can be used to pay deductibles and other out-of-pocket qualifying medical expenses as outlined in Section 213(d) of the Internal Revenue Code. These are the same medical expenses the IRS has determined are deductible for income tax purposes. Within that general rule, your HSA funds can pay for:
- Anything that your High Deductible Health Plan considers a "covered charge," including charges that your HDHP did not pay because they were subject to the deductible or coinsurance
- Prescription drugs
- Certain medical expenses not covered by your insurance, but included in Section 213(d)
A good example of a medical expense that the IRS may allow but is not covered by your HDHP is certain kinds of laser eye surgery. You may be able to pay for these charges with funds from your HSA on a tax-advantaged basis.
HSA funds cannot be used to pay the premiums for most types of medical insurance. The exceptions to this rule are:
- Long-term care insurance
- Premiums for COBRA continuation
- Medical insurance premiums while an individual is receiving unemployment
- Some types of insurance for Medicare-eligible individuals, including
- Medicare parts A or B
- Medicare HMO coverage
- Retiree contributions to employer-sponsored coverage
Please note: payment of premiums for Medigap policies with HSA funds is not allowed.
For more information about qualified medical expenses, we recommend reviewing IRS Publication 502, available at www.irs.gov, or talking with your tax advisor.
What happens to money left over at the end of the year?
Unlike many other health benefit arrangements, unused funds remain in the account and continue to grow tax-advantaged for future use. There is no "use-it-or-lose-it" aspect to an HSA as there are Flexible Spending Accounts or many reimbursement arrangements. Plus, there is no limit on the total account accumulation.
What happens if I change jobs?
Your HSA is your personal account, and the funds in the account belong to you. Your Principal HSA will continue even if you change jobs. If your new employer offers, and you select a High Deductible Health Plan, check with the payroll department at your new employer about setting up payroll deduction and direct deposit for contributions to your Principal HSA. You may also contribute directly to your Principal HSA by mailing a check to Principal Bank along with one of your HSA deposit slips in the postage-paid envelopes provided in your Welcome Kit.
How do I change beneficiaries on my HSA account?
You can use our online Change of Beneficiary Form (PDF: 125 KB), or call a personal banker at 1.800.826.2364.
When will I receive statements for my HSA?
You will receive a monthly statement on your Health Savings Account.
When will I receive year-end tax statements for my HSA?
You will receive a statement showing the contributions and distributions for your Health Savings Account during January of each year for the previous tax year.
Does The Principal save receipts for Qualified Medical Expenditures?
You will be responsible for providing proof that any withdrawals from your HSA were for qualified medical expenses if you are audited by the IRS. We strongly recommend you keep copies of all receipts and billing statements for qualified medical expenses with your tax forms each year.
