What is a Health Savings Account (HSA)

Health Savings Accounts were introduced by President George W. Bush as a part of the Medicare Prescription Drug, Improvement, and Modernization Act and signed into law on December 8. 2003. Used in conjunction with a South Carolina High Deductible Health Insurance Plans, Health Savings Accounts are individual accounts (also referred to as Medical Savings Accounts) used to help finance future medical expenses. A Health Savings Account is a tax-advantaged account in which funds are used to pay for qualified health expenses. Any funds that are not used by the end of the year roll over to the following year. Health Savings Accounts in South Carolina are not subject to federal taxes, although there are penalties resulting in the withdrawal of funds for non-medical expenses (unless these withdraws are taken after retirement age).

HSA Program Benefits include:

  *Significantly lower premium compared to traditional co-pay plans

  *More control over how your health care needs are met
   and financed:  you may price-shop, ask more questions, get more
   involved in prevention and treatment

  *Tax savings:
    tax deductions on HSA contributions
    tax-free withdrawals for qualified medical expenses
    tax-free earnings on dollars accumulating in the HSA

  *Health insurance coverage – protection against high or
    unexpected medical bills

   *Account ownership and portability


Who is eligible for a Health Savings Account in South Carolina?

An HSA can only be used in conjunction with a High Deductible Health Insurance Plan.* Individuals who own an HSA cannot be covered by Medicare or any other health insurance plan outside of their High Deductible Health Insurance Plan.** In addition, an individual who is claimed as a dependent on someone else's tax return with the IRS is not eligible for an HSA.

* In 2009, a High Deductible Health Insurance Plan is defined as a health plan with a minimum deductible of $1150 for self-coverage and $2300 for family coverage. This minimum required deductible is projected to raise $50 in 2010 for self-coverage and $100 for family coverage.

**Exceptions made for additional health care benefits:

•VA benefits
•Discount Drug Cards
•Disease, wellness or Employee Assistance programs provided that said
programs do not provide significant or extensive medical care and
treatment benefits.
•Vision or dental care
•Specific illness or disease insurance (such as cancer insurance)
•Accident, disability, or long-term care insurance


Who can contribute to a Health Savings Account?

Contributions can be made to an HSA either by the individual or the employer. If the individual makes the contribution, the amount contributed can be claimed as a deduction on the individual’s IRS tax returns. In addition, contributions made by others in behalf of the individual can be deducted in the same manner. When made by the employer, the amount of the contribution is excluded from the individual’s wages and is not a part of the HSA holder’s taxable income. Individuals are also allowed to make a one time transfer each year from their IRA to their HSA in accordance with the contribution limitations for that year.


What are the maximum contribution limitations to a Health Savings Account in a year?

In 2009, the contributions made to an HSA, indexed annually, from all sources are as follows:
•Self coverage-- $3000 ($3500 in 2010)
•Family coverage-- $5950 ($6150 in 2010)
In addition, catch-up contributions for individuals 55 and older are allowed at a minimum of $1000, indexed annually.

Contributions to a Health Savings Account in South Carolina must stop once the individual is enrolled in any Medicare Program.  However, money accumulated in and HSA can continue to be used tax free for qualified medical expenses.

 

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