Health Savings Accounts
What are the two factors that define a HDHP?
1.] A high-deductible health plan is a health insurance plan offered by private insurance companies with lower premiums and higher deductibles than a traditional health plan. 2.] An HDHP has a maximum limit on the annual deductible and out-of-pocket medical expenses that the insured must pay for covered expenses. Out-of-pocket expenses include co-payments and other amounts but do not include premiums.
What are the two main components of an HSA plan?
A High Deductible Health Plan [HDHP]' A Health Savings Account. [HSA]
Is an individual entitled to a catch-up contribution in the year during which they turned 55?
A full catch-up contribution can be made for the year in which the participant turns 55, regardless of when the birthday occurs, as long as he or she had HDHP coverage for the entire year, or as of December 1. If HDHP coverage was not in effect for the full year, or if the participant was not eligible as of December 1 of that year, then the amount of the catch-up contribution must be prorated in accordance with the number of months he or she was eligible.
What is an HSA?
An HSA, or Health Savings Account is a domestic trust created or organized as a health savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, the person on whose behalf the HSA is established.
Who can open up an HSA account?
An individual or an employer
Who can contribute to an HSA account?
An individual, an employer, or both can make contributions to HSAs. Family members or any other person may also make contributions on behalf of an eligible individual.
What institutions can be custodians for an HSA account?
Any bank, credit union, or financial institution, including insurance companies, approved by the IRS may be a custodian for HSAs.
If an employer decides to contribute to the employees HSAs, how often is an employer required to make these contributions?
Any frequency desired
What medical expenses would not count toward the deductible of the HDHP?
Any medical expenses which are not covered by the plan. As a general rule, the HDHP deductible must apply to all medical expenses (including prescriptions) covered by the plan.
Contributions to an HSA, no matter who makes them, can be applied to the account holders previous tax year up until what date?
April 15th of the following year.
If an employer decides to contribute to the employees HSAs, is this contribution tax deductible?
As a general rule, yes.
Is there a way to avoid the 6% excise tax on excess c0ontributions to an HSA?
As long as the excess amount (and any associated interest earnings) is withdrawn before the participant's tax filing due date for the year in which the excess contribution was made, the 6 percent excise tax will be avoided.
An HSA is an account owned by: A. A corporation. B. An individual. c. A financial institution.
B. An HSA is an account owned by an individual.
When can contributions be made to an HSA account?
Contributions can be made at any time for any year, up to April 15 of the following year.
Do prescription drug costs count toward the HDHP deductible?
In general yes, if they are covered by the plan.
True or false: One of the characteristics of a health savings account is that they are to be used in conjunction with any health insurance plans.
False, the health insurance plan must be a HDHP
What is the maximum contribution to an HSA in 2019?
Individual $3,500 Family $7000
If the HDHP uses a network, do out of network services count toward the out of pocket maximum?
It depends on plan rules, but it is not required, and in general, these expenses do not count toward the out of pocket maximum.
HSA contributions are tax-advantaged on the Federal level, but are they tax advantaged in state taxes?
It depends on the state, in some states, these contributions are taxable.
What are the four requirements for opening an HSA?
Have a qualified high-deductible health insurance plan in place; Have no other health-care coverage (with a few exceptions); Not be enrolled in Medicare Not be claimed as a dependent on someone else's tax return.
What is the testing period recapture rule?
If an individual ceases to be an eligible individual during the testing period (for reasons other than death or disability), a portion of the contributions he or she made will be "recaptured," included in gross income, and subject to an additional 10 percent tax penalty. The amount is included as income in the year in which eligibility fails, plus a 10% tax penalty.
What is the testing period?
If contributions were made to an HSA based on eligibility for the entire year under the last month rule, the individual must remain eligible during the testing period. The testing period starts with the month the contribution is made to the HSA and ends on the last day of the twelfth month following the start month. For example, if an individual made a contribution on December 1, 2012, the testing period would run from that date to December 31, 2013.
In an HDHP, what does the term "out-of-pocket maximum" mean?
Its a ceiling on the amount of money insureds will spend annually on health costs, excluding premium payments.
What is an excess contribution?
Money contributed to an HSA which is above the annual limit.
Are employer contributions to an employee's HSA taxable to the employee?
No they are not. However, no matter who is making contributions to the HJSA, the contribution limit must not be exceeded.
Are excess contributions tax deductible?
No this amount is not.
If one individual who is married has their own family HSA, and the other has an individual plan, can they keep them?
No, if either spouse has family coverage under an HDHP, both spouses are covered under the family coverage.
Once an HSA account holder becomes enrolled in Medicare, can they make further contributions to their HSA?
No, once Medicare enrollment occurs for the account holder, no further contributions are allowed from any source.
Is an HSA a requirement for enrolling in a HDHP?
No, the insured does not need to open an HSA, but the opportunity exists.
If an insured has a post-deductible health FSA or HRA does the deductible on that plan have to be equal to or higher then the HDHP in order for the beneficiary to make contributions to the HSA?
No, the post-deductible health FSA or HRA deductible can be lower.
Are all medical expenses paid for through an HSA tax deductible?
No, they must be qualified medical expenses. Also the total itemized expenses must exceed 7.5% of the participants Adjusted Gross Income for the tax year, and documentation must be kept in case of an audit.
Does a medical provider need to be in the network of the HDHP in order for the beneficiary to use their HSA?
No. HSA funds can also be used to cover the costs of qualified expenses of out-of-network service providers, without having to obtain prior approval from the HDHP carrier.
Does a medical expense need to be covered by the HDHP in order for the beneficiary to use their HSA?
No. HSA funds can be used to pay for any qualified medical expense, even if the expense is not covered by the high-deductible health plan.
Does an HSA account holder have to take distributions from their accounts to pay for medical expenses?
No. HSA participants do not have to take distributions from their accounts. They can elect to keep funds in the account to accumulate for future use.
Can a couple establish a joint HSA?
No. Separate HSAs must be established for each individual who wants HSA coverage.
If each individual who is married has their own family HSA, can they keep them?
No. They will be covered as a family under the plan with the lower annual deductible.
What responsibility does the custodian financial instution for the HSA have for the way itg is used?
None, it is the account holder who is solely responsible for verifying account uses and contribution levels.
Are lifetime benefit limits imposed on HDHPs?
Not if the plan is ACA compatible, under the ACA, these limits are not allowed. However, if the plan is a non-qualified plan, these limits may be a part of the plan.
Are employer contributions to an HSA taxable?
Not to the employee, and it is deductible for the employer.
What expenses can be paid out of an HSA?
Only "qualified medical expenses" as defined by the IRS.
Who's medical expenses can the HSA account holder pay for out of the HSA account?
Qualified HSA distributions can be taken for qualified medical expenses associated with the individual covered under the HDHP, his or her spouse, or any dependent.
What is a qualified medical expense?
Qualified expenses are medical expenses allowed as tax deductions by Section 213(d) of the Internal Revenue Code. These are explained in IRS Publication 502, "Medical and Dental Expenses." Note that this makes them unlikely to change.
What are the out-of-pocket maximum limits for 2019?
Self-only $7,900 Family $15,800
What is the catch-up provision?
This provision allows older participants to make additional contributions to their HSAs to make up for years in which they did not make maximum contributions. For eligible individuals who are age 55 or older, their contribution limit is increased by $1,000.
How does the IRS define medical care?
To be considered an expense for medical care, the expense must be primarily to prevent or alleviate a physical or mental defect or illness. The determination often hangs on the word "primarily."
True or false: In order to be eligible for a health savings account, the beneficiary may not be claimed as a dependent on someone else's tax return.
True
True or false: In order to be eligible for a health savings account, the beneficiary may not be enrolled in Medicare.
True
True or false: In order to be eligible for a health savings account, the beneficiary must have a high-deductible health plan in place.
True
True or false: One of the characteristics of a health savings account is as a means to accumulate funds to pay for qualifying health-care expenses.
True
True or false: One of the characteristics of a health savings account is that account funds are exempt from taxes as they accumulate in the account.
True
True or false: One of the characteristics of a health savings account is that they are available to anyone who can get an HDHP..
True
True or false: One of the characteristics of a health savings account is that they are to be used in conjunction with high-deductible health insurance plans.
True
True or false: The beneficiary may be enrolled in a long-term care policy.and still have a health savings account.
True
HSAs are tax advantaged. In this context, tax advantaged means: Funds contributed to the account are not subject to federal income tax at the time of deposit. Interest or earnings that accumulate in the account are not subject to federal income tax. Funds taken from the account to pay for qualified medical expenses—at any time—are not subject to federal income tax.
What are the three ways that an HSA is tax advantaged?
Is there a requirement in order for a qualified medical expense to be tax-deductible?
While not a legal requirement, there is a common-sense requirement that the beneficiary retain and be able to produce the receipts for the medical expenses claimed, in the case of an IRS audit.
Are contributions toward an HSA tax deductible?
Yes
Does the MOOP for an HDHP include deductibles, copayments, and coinsurance?
Yes
Can HSA distributions be taken to cover qualified medical expenses that were incurred in prior years?
Yes HSA distributions can be taken to cover qualified medical expenses that were incurred in prior years, as long as the expenses were incurred after the account was established.
Can an account holder use their IRA to contribute to their HSAS?
Yes, but this does not change the annual limit on contributions.
Is there a penalty for making an excess contribution to an HSA?
Yes, there is generally a 6% excise tax assessed.
Can a person who has been subjected to the recapture rule still contriburte to their HSA for that tax year?
Yes, these contributions can be made up to the tax filing deadline for the year in question.
Are excess contributions made by an employer considered gross income?
Yes.
Does the HDHP have to actually be effective for the beneficiary to open an HSA?
Yes. If HDHP coverage is effective as of the first day of a month, an HSA can be opened that day. If HDHP coverage is effective any other day of the month, an HSA cannot be opened until the first day of the following month.
Can an insured have a retirement HRA and still make contributions to an HSA?
Yes. This arrangement pays or reimburses only those medical expenses incurred after retirement. After age 65, no further contributions can be made to an HSA, although accumulated funds can be used to pay qualified medical expenses at any time.
Which of the following statements is correct about an HSA's catch-up provision? a. Participants can make additional contributions to make up for years in which they did not make maximum contributions. b. Only family coverage provides for catch-up. c. Catch-up provisions apply only to eligible individuals age 59½ or older. d. There are no catch-up provisions for HSAs.
a. Participants can make additional contributions to make up for years in which they did not make maximum contributions.
Medicare enrollees can contribute to an HSA. a. True b. False
b. False
All of the following may be a custodian for a health savings account EXCEPT: a. a bank b. a credit union c. an individual d. an insurance company
c. an individual
All of the following are permitted HSA investments EXCEPT: a. mutual funds b. stocks c. bonds d. life insurance
d. life insurance
What is the last month rule?
if a person is an eligible individual on the first day of the last month of his or her tax year—typically December 1—he or she is considered eligible for the entire year and is treated as having the same HDHP coverage for the entire year as was in place on the first day of that last month. This person needs to be aware that using this rule makes them subject to the testing period.
In 2019, what is the maximum annual HSA contribution for self-only HDHPs?
$3,500
In 2019, what is the maximum annual out-of-pocket expense limit for self-only HDHPs?
$6,750
In 2019, what is the maximum annual HSA contribution for family HDHPs?
$7,000
What are the two purposes of an HSA?
-First, they promote savings for future health-care expenses. -Secondly, their intent is to gently prod the public into consumer-driven health-care products by offering tax incentives to those who elect to enroll in such plans.
In 2019, what is the minimum annual deductible for self-only HDHPs?
$1,350
In 2019, what is the maximum annual out-of-pocket expense limit for family HDHPs?
$13,500
In 2019, what is the minimum annual deductible for family HDHPs?
$2,700
How do distributions taken after 65 work?
After an individual turns 65 (or upon the HSA owner's death or disability), distributions can be taken from an HSA for any reason, without penalty. However, such distributions would be subject to tax as ordinary income.
If someone else contributes to my HSA, does it count toward my maximum?
All contributions to an HSA, regardless of source, count toward the annual maximum.
Can a beneficiary use an HSA to pay for over the counter, non prescription drugs?
Although many nonprescription over-the-counter medications were at one time considered qualified expenses, in 2011 the definition of "medical expenses" was changed as a result of the Health Care Reform Act. As the law stands today, distributions from HSAs to cover the cost of over-the-counter medications will be allowed only if the medications are prescribed by a physician, even if no prescription is necessary to purchase the drugs. (This rule does not apply to HSA reimbursements for the cost of insulin, which will continue to be allowed, with or without a prescription.)
What is the highest MOOP dollar amount allowed by law in 2019?
An HDHP's total yearly out-of-pocket expenses can't be more than $6,650 for an individual or $13,300 for a family.
What is the requirement for opening an HSA?
An HSA can be established only in conjunction with a high-deductible health plan.
Is the Eligibility to make contributions to a health savings account determined by the effective date of the participant's HDHP coverage or the date the HSA account is established?
Eligibility to make contributions to a health savings account is determined by the effective date of the participant's HDHP coverage (not the date the HSA account is established)
Funds that remain in an HSA as of December 31 of any year are forfeited.
False
To qualify for a health savings account, an individual cannot be covered by an HDHP that has a deductible any higher than the statutory minimum deductible for HSA eligibility.
False
True or false: In order to be eligible for a health savings account, the beneficiary may not own a long-term care policy..
False
True or false: One of the characteristics of a health savings account is that account funds are not exempt from taxes as they accumulate in the account.
False
True or false: One of the characteristics of a health savings account is that they are reserved for those who are age 55 and older.
False
True or false: The beneficiary may be claimed as a dependent on someone else's tax return and still have a health savings account.
False
True or false: The beneficiary may be enrolled in Medicare and still have a health savings account.
False
True or false: In order to be eligible for a health savings account, the beneficiary must apply for a high-deductible health plan.
False, the application must also be approved.
True or false: One of the characteristics of a health savings account is as a means to accumulate funds to pay for all health-care expenses.
False, the expenses must be qualified expenses
What is the minimum deductible amounts that an HDHP must have in 2019?
The IRS defines a high deductible health plan as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family.
When another person contributes to an HSA, who reaps the tax benefits?
The account holder only.
If an individual changes the type of HSA they hold, from single to family of vice-versa, what determines the maximum allowable contribution for the year?
The contribution limit is generally the maximum annual contribution based on the coverage type in place on the first day of the last month of the tax year, which, for most taxpayers, is December 1. (For those with family coverage, the contribution limit that applies to family coverage applies, even if the coverage type changed during the year.)
What happens if the HSA is used for some purpose other then paying for qualified medical expenses?
The distribution is included in the individual's income tax and is subject to an additional penalty. As noted, the penalty is currently 20 percent in 2012.
Who is ultimately held responsible for the determination if a medical expense is considered qualified and therefore tax deductible?
The individual who holds the HSA acvcount, and ultimately, the IRS. This person is solely responsible for verifying account uses and contribution levels. Custodians are not responsible for ensuring that expenses paid under the account are qualified medical expenses. Nor are employers, in the case of employer-sponsored HSA accounts, required to substantiate whether HSA distributions are used exclusively for qualified medical expenses.
To prevent discrimination, employer contributions to an employees HSA must meet what requirement?
They must be "comparable"— either the same amount or the same percentage of the annual deductible limit must be contributed for each employee.
If an account holder wants to use their IRA to contribute to their HSAS, what two criterion must be met?
The rollover amount is counted against the annual maximum for HSA contributions. The transfer must be made directly from the IRA custodian to the HSA.
Are their limitations as to how HSA funds are invested by the account-holding institution?
The same type of investments are allowed in HSA accounts as are allowed in IRA accounts. These include stocks, bonds, mutual funds, certificates of deposit, annuities, and money market accounts.
On what two factors does the amount that the individual may contribute to an HSA depend?
The type of high-deductible health plan in effect. [Single or family] The participant's age. [Catch-up contributions]
