About Health Savings Accounts (HSAs)

This section contains more information about Health Savings Accounts. To navigate, simply select the section you are interested in learning about, or scroll below to read the entire contents:

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What is a Health Savings Account (HSA)

Health Savings Accounts (HSAs) are savings accounts that allow individuals to pay for qualified out-of-pocket medical expenses using pre-tax dollars. Unlike more traditional health care accounts, the funds in an HSA belong to the individual, not the employer or the insurance company, and travel with the individual as they switch jobs, employers and insurance companies. Another added advantage of HSAs is that any unspent funds can be rolled over from year to year and the interest and earnings grow tax free, similar to an IRA.

What is a High Deductible Health Plan (HDHP)?

A High Deductible Health Plan (HDHP) is a different type of health plan. Under an HDHP you obtain insurance coverage for large expenses and use a corresponding Health Savings Account to pay for day to day expenses. In order to meet the requirements an HDHP in 2011 must have a deductible of at least $1,200 for individuals and $2,400 for families. Total out-of-pocket expenses cannot exceed specified limits.

What are the benefits of an HSA

Once you have purchased an approved HDHP you are eligible to open a Health Savings Account (HSA). An HSA is very similar to an IRA in that:

How do I open an HSA

Opening an HSA is very similar to opening an Individual Retirement Account. If you have not opened an IRA, it’s not much more time-consuming or difficult than opening a checking account. You can do so in person, over the internet or through the mail by completing some very basic documents. For internet applications, you are almost certainly going to be required to print and sign the application and send it in.

You provide basic information to your HSA provider, such as, name, address, social security number, date-of-birth, phone number, driver’s license and e-mail. You also sign the account and agree to terms in a “Custodial Agreement” which sets forth the details on the HSA. That’s basically all you need to do to open an HSA.

You may also want to authorize a co-signer on your HSA. An HSA is an individual account and cannot be held jointly; however, some HSA providers allow for co-signers. One spouse’s HSA can be used for the benefit of other eligible members in the family. A spouse opening an HSA can allow the other spouse to have check signing privileges on the HSA and also a Falcon National Bank MasterCard™. It generally makes sense to only open one HSA per family rather than split the contribution between two spouses’ accounts, but there are exceptions.

As a custodial or trust account, you are permitted and encouraged to name a beneficiary for your HSA at the time you open it. At the time of death, a spouse beneficiary will have the option to treat the account as his or her own HSA and continue to use the account as an HSA. A non-spouse beneficiary will not be allowed to keep the assets in an HSA and will have to include the amount in the HSA as income. If you do not name a beneficiary, any balance remaining in your HSA will go to your estate.

How much can I contribute to an HSA?

Under the new program individuals are allowed to contribute up to $3,100  ( 2012 ). Families are eligible to contribute up to $ $6,250 (2012).

How do I make contributions

You will generally open your HSA with an initial contribution. This could be a check, an ACH withdrawal from your checking account or a contribution from your employer made payable to the HSA custodian or trustee. You may then want to set up an automatic deposit plan for future contributions. An automatic monthly deposit allows for you to fund your HSA on a regular basis without any hassle. If you prefer, you can make your full annual contribution all at once. Your employer may also make contributions on your behalf or as a benefit to you.

What expenses are qualified

The funds in your HSA can be used to pay for qualified medical expenses. Qualified expenses are those that the IRS has determined are true medical expenses and include most normal medical expenses such as:

View a complete list of qualified medical expenses.

How do HSAs compare to FSAs and HRAs

Health Savings Accounts

Flexible Spending Accounts

Healthcare Reimbursement Accounts

Where can I open my HSA

As a new product in the market, there are still only a limited number of HSA providers. Only banks, savings and loans, credit unions, insurance companies and other institutions specifically approved by the Internal Revenue Service are allowed to offer HSAs. Open an account with HSA Resources


* Individual deductible note: the prorated annual deductible is based on the number of months that you hold the HDHP. For example: if you purchased an HDHP with a $2,400 deductible effective on October 1, 2005, you would be able to contribute the lesser of (1) $2,650 or (2) the prorated amount of $2,400 which would be 1/3 of $2,400 or $800.

* Family deductible note: the prorated annual deductible is based on the number of months that you hold the HDHP. For example: if you purchased an HDHP with a $3,000 deductible effective on October 1, 2005, you would be able to contribute the lesser of (1) $5,250 or (2) the prorated amount of $3,000 which would be 1/3 of $3,000 or $1,000.