Health Savings Accounts (HSA)
A Health Savings Account (HSA) is a health care account that you can use to pay for qualified medical expenses with pre-tax dollars. You can set up and contribute to an HSA if you are enrolled in a qualified Consumer-Directed Health Plan (CDHP). You cannot be covered by any other health plan such as Medicare, Tricare, retiree health coverage or a spouse’s health plan. Unused HSA dollars roll over year to year and have the potential to grow into an account you can use for qualifying medical expenses in retirement. The HSA funds can grow with interest, all tax-free.
When you choose the CDHP with the HSA, your bi-weekly health care deductions will be less; however, you have responsibility for up-front medical costs (through the deductible and coinsurance) for health care services and prescriptions. You must also understand and manage that your HSA contributions and withdrawals comply with IRS guidelines. While the University of Alaska provides convenient payroll deductions for the HSA, all aspects of managing and maintaining the account remain the responsibility of the employee.
What is a “qualified” CDHP?
This is a high deductible health plan that meets the requirements of an HSA. This means the pharmacy benefit is included in the medical deductible and out-of-pocket maximum so you don’t have copays. Your prescription costs will be applied to the deductible along with other medical expenses, and then the 20% coinsurance until you reach the out-of-pocket maximum.
Another feature of the CDHP is that coverage for more than just yourself on the plan is considered family coverage. The entire family deductible must be met before any coinsurance is paid and the family out-of-pocket maximum must be met before the plan pays 100% for covered benefits. There is no individual deductible in the family coverage situation.
Like the other UA Choice plans, the CDHP comes with a preventive care benefit that pays 100% of allowable charges for preventive health care services, such as routine physicals, screenings based on age and gender (e.g., mammograms, PSA test, colonoscopy), and immunizations. The CDHP also has the same vision coverage through VSP and the same dental plan as the regular HDHP. Regular office visits, diagnostic imaging and tests and other medically necessary services are covered just like the other plans after you’ve met the deductible.
The value of the HSA
The value of the HSA comes from the ability to make higher pre-tax contributions than a Flexible Spending Account and the fact that the unused dollars roll over from year to year accruing interest and a growing balance for future use. You own the HSA, so you take it with you when you leave the university. The university will support contributions by pre-tax payroll deduction or you can contribute directly to the account with after-tax dollars and report it on your tax return. The 2015 annual maximum contributions to the HSA is $3,350 for an individual, and $6,650 for family coverage, vs. $2,550 to the FSA regardless of family size. Additionally, if you are 55 or older, you are able to contribute an additional $1,000 into the HSA annually.
You cannot have an HSA and a health care FSA at the same time, but you can have the dependent care FSA with an HSA.
How do I know if a CDHP and HSA is right for me?
Many people can save money with the CDHP/HSA option after taking into account the lower payroll deductions and tax-free contributions into the HSA. However, a CDHP/HSA is not right for everyone. Listed below are some guidelines.
CDHP/HSA is best for people who:
- Meet the eligibility requirements to participate in a CDHP
o Are enrolled in an HSA-qualified plan and comply with all of the other IRS eligibility requirements (your HDHP). Refer to your employer’s eligibility rules to determine if you are eligible for the HDHP.
o Do not have coverage under any other health plan that is not an HSA-qualified health plan. For example, if you are covered as a dependent through a spouse’s health plan and that plan is not an HSA-qualified health plan, you would be ineligible to open or contribute to an HSA.
o Are not enrolled in any Medicare program, including Medicare coverage for persons with disabilities under the age of 65, or Medicaid.
o Are not enrolled in Tricare (benefits offered to military personnel).
o Have not received VA (benefits from the Veteran’s Administration) benefits within the last three months.
o Are not covered as a dependent under an FSA through your spouse's employer (unless that Health FSA coverage is limited to dental, vision, and/or preventive care expenses).
o File US taxes.
- Want the lowest payroll deduction
- Can pay out-of-pocket for prescriptions and health care services needed early in the year, if there are not enough dollars accrued in the HSA.
- Have overall good health; primarily use preventive care and do not have ongoing major medical needs and/or use specialty drugs (e.g. high-cost injectable, oral or inhaled drugs).
- Are willing to retain documentation for HSA expenditures in case of an IRS audit.
- Are willing to verify if non-covered services or supplies are qualified medical expenses
- Want additional tax-free savings for future medical expenses
- Want to save for the future and build an HSA balance that remains with them even after University of Alaska employment or into retirement.
CDHP/HSA is NOT recommended for people who:
- Cannot pay out-of-pocket for prescriptions and health care services if not enough dollars accrued in the HSA.
- Do not wish to track their HSA dollars and expenses (some people just don’t want to or are unable to do this).
- Do not wish to verify if non-covered services or supplies paid for by the HSA are qualified medical expenses.
- Have ongoing major medical needs and/or use specialty drugs
Bank of America HSA for Life
The University has partnered with Bank of America to offer the Health Savings Account. After you enroll in the HSA, you will receive a welcome kit from Bank of America with a debit card to pay for eligible health care expenses with your HSA. More information about the HSA for Life can be found here.
Bank of America’s Customer Care Center is available from Monday through Friday, 4:00 a.m. to 7:00 p.m. Alaska time at (866) 791-0250.
Visit Bank of America’s web site to access a variety of on-line tools and calculators, view educational videos, check your HSA balance, review claim transactions, and order replacement or additional debit cards.
Links of Interest
www.irs.gov/pub/irs-pdf/p502.pdf for a comprehensive list of eligible medical expenses
http://www.irs.gov/publications/p969/ix01.html for the IRS publication on HSAs
http://www.irs.gov/pub/irs-pdf/i8889.pdf for the IRS reporting instructions
http://www.irs.gov/pub/irs-pdf/f8889.pdf for the IRS reporting form