FAQ on Health Savings Accounts

Health care consumers seeking lower insurance premiums opt for high-deductible insurance plans. Qualified high-deductible insurance plans offer consumers a health savings account, or HSA. Health savings accounts allow investors to contribute money to the account tax-free. The consumer can withdraw the money to pay medical costs without losing the tax-free status.

What Insurance Plans Qualify As High-Deductible Plans?

• Insurance plans qualify the insured to open a health savings account if the plan deductible equals $1,150 or more for an individual, or $2,300 or more for a family, as of December 2010. The plan may cover preventive care, such as physical examinations or vaccinations, prior to reaching the deductible and still qualify. Maximum out-of-pocket expenses for the insured equal $5,800 for an individual or $11,600 for a family. Money saved in a health savings account can be used to pay all out-of-pocket expenses.

What Is the Difference Between an HSA and an FSA?

• A health savings account and a flexible spending account, or FSA, offer similar benefits to account holders. The individual can access the funds tax-free to pay for out-of-pocket medical expenses. The money saved in a health savings account belongs to the individual whether she loses the insurance or changes to a nonqualifying plan. The balance remaining in the health savings account at the end of the year can be rolled over to the following year. Flexible spending accounts belong to the individual regardless of the insurance coverage chosen or the continuation of an insurance policy. The money remaining in a flexible spending account can't be rolled over and is lost if the individual doesn't use it by the end of the year.

What Are the Contribution Limits?

• Individuals and their employers can contribute to an individual's health savings account. As of December 2010, the maximum amount that can be contributed is $3,050 for an individual or $6,150 for a family. The IRS maintains a last-month rule for individuals who transition from one plan to another during the year. The last-month rule requires that an individual qualify for a contribution limit based on her status on the first day of the last month in the tax year. For taxpayers who file their income tax returns based on the calendar year, this date is December 1.

What Happens to the Money in an HSA If the Owner Leaves His Job?

• When an individual leaves his current employer, he has the option of discontinuing the current insurance or purchasing COBRA insurance. COBRA insurance maintains the same high-deductible coverage the individual carried and maintains a qualifying plan for purposes of the health savings account. If the individual acquires new high-deductible insurance through a new employer or through a private insurance company, he still qualifies for the tax benefits of the health savings account. If he acquires nonqualifying insurance or has no insurance, the tax benefits of the account are lost. In either case, the money belongs to him.