Health Saving Account

A Health Savings Account (HSA) is an account that you can put money into to save for future qualified medical expenses. There are certain advantages to putting money into these accounts, including favorable tax treatment. Please visit one of our conveniently located offices.

Who Can Have an HSA

Any adult can contribute to an HSA if they:

  • Have coverage under an HSA-qualified “high deductible health plan” (HDHP)
  • Have no other first-dollar medical coverage (other types of insurance like specific injury insurance or accident, disability, dental care, vision care, or long-term care insurance are permitted).
  • Are not enrolled in Medicare.
  • Cannot be claimed as a dependent on someone else’s tax return.

Contributions to your HSA can be made by you, your employer, or both. However, the total contributions are limited annually.
HSA contributions can be deductible (even if you do not itemize deductions) when completing your federal income tax return. Interest earned on funds in an HSA account and withdrawals are tax-free when used to pay for qualified medical expenses.
Contributions to the account must stop once you are enrolled in Medicare. However, you can keep the money in your account and use it to pay for medical expenses tax-free.

High Deductible Health Plans (HDHPs)

You must have coverage under an HSA-qualified “high deductible health plan” (HDHP) to open and contribute to an HSA. Generally, this is health insurance that does not cover first dollar medical expenses. Federal law mandates that the health insurance deductible in 2023 be at least:

  • $1,500 – Self-only coverage
  • $3,000 – Family coverage

In addition, annual out-of-pocket expenses under the (2023) plan (including deductibles, co-pays and other amounts, but no premiums) cannot exceed:

  • $ 7,500 – Self-only coverage
  • $15,000 – Family coverage

In general, the deductible must apply to all medical expenses (including prescriptions) covered by the plan. However, plans can pay for “preventive care” services on a first-dollar basis (with or without a co-pay). “Preventive care” can include routine prenatal and well-child care, child and adult immunizations, annual physicals, mammograms, pap smears, etc.

Finding HDHP Coverage

Any company that sells health insurance coverage may offer HDHP policies. Although the Bank cannot recommend any specific names of companies selling these policies, you should be able to find a qualified policy by contacting your current insurance company or an agent licensed to sell health insurance.

HSA Contributions

You can make a contribution to your HSA each year that you are eligible. For 2023, you can contribute up to the following amounts to a qualified individual’s HSA; $3,850 for self-only coverage or $7,750 for family coverage. Contributions can be made as late as April 15 of the following year.

Catch-Up Contributions

Individuals age 55 and older can make additional “catch-up” contributions. The maximum annual catch-up contribution is $1,000 for 2022 and 2023. A covered spouse who is 55 or older, may also contribute a catch-up contribution, however, a separate HSA must be established in the spouse’s name.

Determining Your Contribution

Your eligibility to contribute to an HSA is determined by whether you have HDHP coverage on the first day of the month. Your maximum contribution for the year is the greater of (1) the full contribution, or (2) the pro-rated amount. The full contribution is the maximum annual contribution for the type of coverage (individual or family) you have on December 1.

The pro-rated amount is 1/12 of the maximum annual contribution allowable by IRS for your particular plan. If your contribution is greater than the pro-rated amount, and you fail to remain covered by an HDHP for the entire following year, the extra contribution above the pro-rated amount is included in income and subject to an additional 10 percent tax.

Advantages of your Health Savings Account

Your High Deductible insurance and HSA protect you against high or unexpected medical bills.

You should be able to lower your health insurance premiums by switching to health insurance coverage with a higher deductible.

You can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs, such as:

  • Health insurance or medical expenses if unemployed
  • Medical expenses after retirement-before Medicare
  • Out-of-pocket expenses when covered by Medicare
  • Long-term care expenses and insurance

You make all the decisions about:

  • How much money to put into the account
  • Whether to save the account for future expenses or pay current medical expenses
  • Which medical expenses to pay from the account

Accounts are completely portable, meaning you can keep your HSA even if you:

  • Change jobs
  • Change your medical coverage
  • Become unemployed
  • Move to another state
  • Change your marital status

Funds remain in the account from year to year. There are no “use it or lose it” rules for an HSA.

Tax Savings

An HSA provides you triple tax savings:

  1. tax deductions when you contribute to your account;
  2. tax-free earnings through investment; and,
  3. tax-free withdrawals for qualified medical expenses.
Using Your Health Savings Account (HSA)

You can use the money in the account to pay for any “qualified medical expense” permitted under federal tax law (Treasury Publication 502, Medical and Dental Expenses). This includes most medical care and services, dental and vision care, and also includes equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits.

You can generally not use the money to pay for medical insurance premiums, except under specific circumstances, including:

  • Any health plan coverage while receiving federal or state unemployment benefits
  • COBRA continuation coverage after leaving employment with a company that offers health insurance coverage
  • Qualified long-term care insurance
  • Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance

You can use the money in the account to pay medical expenses for yourself, your spouse, or your dependent children. You can pay for expenses of your spouse and dependent children even if they are not covered by your HDHP.

Any amounts used for purposes other than to pay for “qualified medical expenses” are taxable as income and subject to an additional 20% tax penalty.

Examples include:

  • Medical expenses that are not considered “qualified medical expenses” under federal tax law (e.g., cosmetic surgery)
  • Other types of health insurance unless specifically described above
  • Medicare supplement insurance premiums.
  • Expenses that are not medical or health related

After you turn age 65, the 20% additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional 20% penalty.

Health Savings Account FAQ

How do I open a Health Savings Account?

Visit one of our conveniently located offices to open a Health Savings Account.

What happens to my HSA when I die?

If your spouse becomes the owner of the account, your spouse can use it as if it were their own HSA.  If you are not married, the account will no longer be treated as an HSA upon your death.  The account will pass to your beneficiary or will become part of your estate (and be subject to any applicable taxes).

How do I learn more about HSAs?

Visit with one of our customer service representatives or visit Treasury’s website for additional information about Health Savings Accounts, including answers to frequently asked questions, related IRS publication and forms, technical guidance, and links to other helpful websites.  More information can be found by searching for HSA on the U.S. Department of the Treasury website.  Click here to learn more.