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HSA Limitations

Health Savings Accounts cover medical expenses that are not reimbursable under health insurance plans. Enrollment in Health Savings Accounts, or HSAs, is growing every year, according to a survey by the Society of Human Resource Management. Flexibility and portability enhance HSA popularity. HSAs were introduced by the IRS in 2004. The IRS sets the guidelines and limitations for HSAs.

  1. What is a Health Savings Account?

    • HSAs can be opened at your local bank

      Health Savings Account deposits can only be used for qualified medical expenses. Deposits into the HSA are non-taxable and can be deducted on tax returns. Medical expenses paid from the fund are also non-taxable. Unused funds in the account roll over to the next year without forfeiture. Any interest generated from the account is tax-free. Individuals 65 and under who are not covered by Medicare are eligible to open an account. Dependents of another person cannot open an account. To qualify for an HSA, the applicant must be covered by an HSA-qualified High Deductible Health Plan (HDHP).

    How do I Open an Account?

    • Opening an HSA account is as easy as opening a regular savings account. Individuals can open an account at their local bank or credit union. Most banks offer these accounts. Many people enroll during their employer's open enrollment period. The benefits representative at your workplace usually has a list of HSA providers. Those who enroll in the workplace may be able to take advantage of payroll deduction to fund the account. Many banks such as Wells Fargo and Bank of America offer online Health Savings Account enrollment for individuals. No matter where you open an account, the funds are yours and you do not lose them if you change jobs or move out of state.

    IRS Limitations

    • Every year the IRS sets a contribution limit for HSAs, dependent on cost of living adjustments. For 2011, the amounts are unchanged. The maximum contribution for an individual is $3,050. For a family account, the contribution limit is $6,150. To be eligible for a Health Savings Account, individuals must have a high deductible insurance plan. For 2011, the IRS has set the minimum qualifying deductible for an individual at $1,200 and $2,400 for family plans. The IRS also sets a limit on the amount of out of pocket expenses that can be reimbursed through an HSA. For individuals, this amount is $5,950 and for families, $11,900. For individuals with insurance plans that charge different rates for in-network vs. out of network providers, the limit does not apply to expenses arising from using out of network providers.

    HSA Reimbursable Expenses

    • Any medical expenses incurred before opening an HSA are not eligible expenses. Insurance co-pays, deductibles and prescription medications are reimbursable items through the HSA. Insurance premiums cannot be paid by HSA funds, nor can cosmetic surgeries. Starting in 2011, over the counter medications are no longer reimbursable through Health Savings Accounts.

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