A Health Savings Account, or HSA, is a program that allows employers or individuals (or both) to set aside money on a tax-free basis to pay for medical expenses. HSA account balances roll over from year-to-year and interest accumulates tax-free.

To be eligible for an HSA, you must be under age of 65, not eligible for Medicare, and be insured by a high deductible health plan (HDHP). Essentially, individuals must have a deductible that is at least $1,200 and families (two or more persons) must have a deductible that is at least $2,400. You need not be employed, although you must have an income. Thus, the HDHP can be purchased individually or can be provided by the employer as group insurance.

There are other specific requirements for the high deductible health plan. It cannot pay for any first dollar benefits, such as prescriptions, although it can cover some incidental preventive care services. Moreover, out-of-pocket maximums cannot exceed $5,950 for individuals, or $11,900 for a family.

Using the HSA
The HSA account works like this: an individual or his/her employer can make a contribution to a tax-favored account where funds are used to pay for medical expenses not covered by insurance. Individuals and families can contribute up to 100% of their deductible, to a maximum of $3,050 (for 2009 it was $3,000) for an individual and $6,150 (for 2009 it was $5,950) for a family in 2010. Withdrawals used for medical expenses are not subject to taxation and unused funds remain in the account from year to year accumulating tax-free interest. Please note, however, that withdrawals from HSAs that are not used to pay for qualified medical expenses are subject to State and federal income taxes, and if you are under the age of 65 are also subject to 15% federal and up to 10% state tax penalties.

Qualified HSA Medical Expenses *
	Travel expenses
	Learning disabilities
	Mental health treatment
	Chiropractic and Acupuncture
	Dental care (including orthodontia)
	Eye exams, glasses and vision correction surgery

* As defined by section 213(d) of the Internal Revenue Code.

You can also use the HSA to pay for long-term care insurance, Medicare Part B and Part D premiums, and COBRA premiums while you are receiving unemployment compensation. For a complete list of eligible expenses, visit the IRS website at irs.gov. Look for Publication 502.

For those individuals ages 55 and older, special catch-up provisions are available. For the 2010 tax year, an additional $1,000 contribution can be made to a HSA. In addition, the HSA account is "portable," so if you change employers or leave the work force, the HSA account goes with you.

Setting up an HSA
To set up an HSA, you must contact a bank, insurance company, or other financial institution accredited as an HSA trustee. Institutions already approved by the IRS to be IRA trustees are automatically approved to be HSA trustees. Some insurers also offer arrangements for setting up your HSA, including debit cards for account withdrawals. We recommend Sterling HSA if you are unfamiliar with Health Savings Accounts and might need assistance with your claim. Please feel free to contact us with any questions.

At Susan Polk Insurance, we are happy to arrange an appointment to review your current health insurance and evaluate the impact of participating in the HSA program. We are also available for presentations to groups of employees or employers.

If you are interested in more information about this health care program, contact Susan Polk Insurance Agency today at (805) 544-6454 or e-mail us.