- Health Savings Account Fact Sheet
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- The Medicare bill signed by the
President creates new Health Savings Accounts (HSAs) to help
individuals save for qualified medical and retiree health expenses
on a tax-free basis.
- Beginning on January 1, 2004,
individuals under the age of 65 are eligible to contribute to an HSA
if they have a qualified health plan.
- For self-only policies, a qualified
health plan must have a minimum deductible of $1,000 with a $5,000
cap on out-of-pocket expenses (indexed annually).
- For family policies, a qualified
health plan must have a minimum deductible of $2,000 with a $10,000
cap on out-of-pocket expenses (indexed annually).
- Preventive care services, as well as
coverage for accidents, disability, dental care, vision care, and
long-term care is not subject to the deductible.
- Individuals may contribute up to 100%
of the health plan deductible. The maximum annual contribution
is $2,650 for self-only policies and $5,250 for family policies
(indexed annually).
- Individuals age 55 – 65 may make
additional “catch-up” contributions of up to $500 in 2004,
increasing to $1,000 annually in 2009 and thereafter. A
married couple can make two catch-up contributions as long as both
spouses are at least 55.
- Contributions may be made by
individuals, family members and employers and are tax deductible,
even if the account beneficiary does not itemize. Employer
contributions are made on a pre-tax basis and are not taxable to the
employee. Employers will be allowed to offer HSAs through a
cafeteria plan.
- Investment earnings accrue tax-free.
- HSA distributions are tax-free if they
are used to pay for qualified medical expenses. Qualified
expenses include prescription drugs, qualified long-term care
services and long-term care insurance, COBRA coverage, Medicare
expenses (but not Medigap), and retiree health expenses for
individuals age 65 and older.
- Distributions made for any other
purpose are subject to income tax and a 10% penalty. The 10%
penalty is waived in the case of death or disability. The 10%
penalty is also waived for distributions made by individuals age 65
and older.
- Upon death, HSA ownership may transfer
to the spouse on a tax-free basis.
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