Health Savings Accounts (HSA) were signed into law on December 8, 2004 and represent a significant expansion of Medical Savings Accounts (MSA).

Q. What is a Health Savings Account?

A. A HSA works like an IRA, except that money is used to pay health care costs. Participants must first enroll in a high-deductible insurance plan. A tax-deductible Hedical Savings Account can be opened to cover current and future medical expenses. The money deposited is tax-deductible and all earnings are tax-deferred. The money in the account can be withdrawn to cover qualified medical expenses tax-free. Unused balances remain in the account and roll over from year to year.

Q. Who is eligible?

A. An “eligible individual” is any individual who, for a given month…

· is covered under a qualified high-deductible health plan (QHDHP) on the first day of such month

· is not also covered by any other health plan that is not an QHDHP (with certain exceptions for plans providing certain limited types of coverage)

· is not entitled to benefits under Medicare (generally, has not yet reached age 65)

· may not be claimed as a dependent on another person’s tax  return.

Q. How does a Health Savings Account Work?

A. You must first obtain a qualified high-deductible health insurance policy. Each year you can deposit tax-deductible money, up to the maximum, into a tax-favored Health Savings Account. Funds in the HSA can be used to pay for deductibles and other out-of-pocket qualified expenses with tax-free dollars. Once you meet the deductible and coinsurance, the insurance policy pays for your medical expenses. All money left over at the end of the year stays in your Health Savings Account.

Q. What is a high-deductible health insurance plan?

A. As of 2007, a high-deductible insurance plan is a health plan with a minimum deductible of $1100 for individual coverage and $2,200 for family coverage. The maximum out-of-pocket expenses must be no more than $5,500 for individual-only coverage and no more than $11,000 for family.

Q. What is the maximum contribution limit? 

A. Up to 100% of the deductible with a maximum of $2,850 for individual coverage and $5,650 for family coverage. Contributions can be made at any time during the contribution year until the tax return due date (April 15 cut-off). Account holders age 55 and older may make additional contributions of $800 in 2007: this amount increases by $100 each year until it reaches $1,000 in 2009.

Q. Who can make contributions to a HSA?

A. Contributions can be made by the account holder (individual, self-employed, employee), any combination of an employer and employee or a family member (on behalf of an account holder).