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Policies for a Health Savings Account

The idea behind health savings accounts is that giving consumers more control over their health care spending will lead them to make smarter and more informed choices. With an HSA, you can contribute money to a tax-advantaged account and use those funds to pay for your health care throughout the year. But before you invest it is important to understand the rules and policies governing these accounts.

  1. High Deductible Health Plan, HDHP

    • The health savings account is designed to work hand-in-hand with a high deductible health plan. To open a new health savings account or contribute to an existing one, you must already have a high deductible health plan, HDHP, in place. To qualify as an HDHP, a health insurance plan must have a deductible of at least $1,200 for single coverage or $2,400 for family coverage, as of 2011. Contact your human resources manager or your insurance broker if you are not sure whether or not your current plan qualifies as an HDHP.

    Contribution Limits

    • Contributing to a heath savings account can provide you with significant tax savings, but the IRS places a limit on how much you can put into the account each year. The agency reviews the contribution limits yearly, and as of 2011, you can put up to $3,050 in an individual HSA plan and $6,150 into a family HSA plan.

    Acceptable Spending

    • The money in your health savings account can only be used to pay for medical and health care expenses. If you use those funds for any other purpose, you are subject to a tax penalty from the IRS. You will receive a statement from the administrator of your HSA plan each year showing how much was withdrawn from your plan for the current year. The distribution amount must be reported to the IRS and indicate whether or not the money was spent on health care expenses like doctor visits, prescription drugs, vision services and dental care.

    Rollover Money

    • One of the biggest advantages of HSAs over flexible spending accounts and similar plans is the fact that the money in the account rolls over from year to year. If you have $500 or $5,000 remaining in your account on December 31, you will still have that money on January 1 of the following year. You can continue to contribute additional money to the account each year, up to the contribution limit for the current year. The money is allowed to grow and compound, and you can continue to use those funds to pay for your eligible health care expenses.

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