Health Savings Account (HSA)
What is an HSA?
A health savings account (HSA) is a tax-exempt savings account into which both the employer and employee can deposit money (up to an annual limit specified by the IRS) on a tax-preferred basis. The idea is simple: after enrolling in a qualified High Deductible Health Plan (HDHP) and opening an HSA, members can use accumulated tax-free contributions to pay for health care costs for themselves, their spouse and any tax dependents - including doctor and hospital visits, co-payments, eyeglasses, prescriptions, certain long-term care insurance premiums and COBRA premiums.
The employee must be an eligible individual to qualify for an HSA. An HSA offers valuable savings:
- Contributions are tax free
- Account interest accumulates tax free
- Dollars spent on qualified medical expenses are tax free
HSA Eligibility Requirements:
If you do not meet all of the following eligibility requirements, federal regulations prohibit you from opening an HSA:
- Covered under a qualified high deductible health plan on the first day of the month.
- Not covered by any other health plan, including your spouse's health insurance.
- Not covered by spouse's Healthcare Flexible Spending Account (FSA).
- Not enrolled in any part of Medicare or Tricare.
- Have not received Veteran's health benefits in the past 90 days.
- Not claimed as a dependent on another person's tax return.
While the Patient Protection and Affordable Care Act allows parents to add their adult children (up to age 26) to their health plans, the IRS has not changed its definition of a dependent for health savings accounts. This means that an employee whose 24-year-old child is covered on his HSA-qualified high-deductible health plan is not eligible to use HSA funds to pay that child's medical bills.
If account holders can't claim a child as a dependent on their tax returns, then they can't spend HSA dollars on services provided to that child. According to the IRS definition, a dependent is a qualifying child (daughter, son, stepchild, sibling or stepsibling, or any descendant of these) who:
- Has the same principal place of abode as the covered employee for more than one-half of the taxable year.
- Has not provided more than one-half of his or her own support during the taxable year.
- Is not yet 19 (or, if a student, not yet 24) at the end of the tax year or is permanently and totally disabled.
Employees who wish to participate in an HSA must be enrolled in a high deductible health plan, such as our new PPO + HSA (BlueEdge), cannot be Medicare eligible, cannot be claimed as a dependent on another person's tax return, and cannot be enrolled in any other non-qualified medical plan including Medicare and military plans.
HSA's are not use-it-or-lose-it plans. The contributions you make to the account rollover year to year and are yours to take with you if you leave the University. The HSA is not pre-funded. You use what is available in the account after it has been deposited.
Management of your HSA is your responsibility. You must first open your account before funds may be deposited (including any employer contributions) or withdrawn to pay for qualified medical expenses. You will receive a Welcome Kit in the mail with instructions on how to open your account or you may use the "open your account" link as noted above. For either method, there are a few forms requiring personal information; this information is required by federal banking regulations under the Patriot Act, just as it would be required to open a traditional banking account. Look for the form titled "Master Signature Card" in your kit or online. Even if you electronically provide your signature to open your account, you should mail in this card. It gives you the ability to designate a beneficiary for your account. You can use your HSA Solutions debit card, administered by BenefitWallet to pay for eligible expenses or you can reimburse yourself by writing a check from the account. Your BenefitWallet HSA is your own bank account and as with any bank account applicable fees will apply.
For the 2014 tax year, the employee's maximum contribution is $2,800 for individuals and $5,550 for a family. For 2015 these will increase to $2,850 for individuals and $5,650 for a family. Baylor will annually contribute $500 for individuals and $1,000 for a family. Baylor's contributions in 2014 are deposited monthly; however, for 2015 they will be deposited as a lump sum in January 2015. You may also have an opportunity to make a catch up contribution if you are age 55.
Accessing HSA Funds
You may access funds through:
- Your HSA Solutions debit card
- Your HSA Checkbook
- Online Bill Pay
Be sure to retain all receipts and other documentation related to your distributions in the event you are later asked to substantiate an expense for tax purposes.
How an HSA differs from an FSA
Health Savings Accounts (HSAs) and Healthcare Flexible Spending Accounts (FSAs) are both great ways to reduce your income taxes by paying for medically-related expenses with pre-tax money - that is, money deducted from your paycheck before income taxes are calculated on your pay. Both types of accounts work similarly, in that you can deposit pre-tax money into the account, and use the account to pay for various tax-deductible medical expenses as they occur. But the two types of accounts operate quite differently.
In 2015 these limits increase to $3,350 for employee only and $6,650 for family.
Transitioning from an FSA to an HSA
A healthcare FSA and/or a spouse's healthcare FSA are not allowed if the employee and/or spouse are enrolled in the PPO + HSA health plan. Healthcare FSAs must be closed by December 31 before HSA contributions can be established for the new year. For participants who have FSA funds remaining in their account after December 31, Baylor and personal HSA contributions will begin after April 1 of the new year.
The Bank of New York Mellon (BNY Mellon) is the HSA custodian. Deposits to the HSA checking account are FDIC insured up to the FDIC coverage limit.