What is a Health Savings Account?
Starting January of 2004, Medicare Prescription Drug, Improvement, and Modernization Act (MMA) allowed for a new form of savings account (Health Savings Account) for those who qualify with a high-deductible health insurance plan. Health Savings Account had an estimated enrollment of 17 million in the US in 2014.1 Health Savings Account is an account to which contributions are tax deductible, and qualified medical expenses paid from Health Savings Account are still not taxable income. The interest, as well as capital earnings are also accumulated without tax.
Who is eligible?
As of 2015, a Health Savings Account-eligible health plan has an annual deductible minimum of $1,300 for self and $2,600 for family. The out-of-pocket maximum must be less than $6,450 and $12,900 for family plans. One cannot be enrolled in other health coverage unless the other plan is also Health Savings Account-eligible.2
Health Savings Account contributions can be made from the individual and the employer. The contribution from the individual is tax deductible, and employer contributions are excluded from taxable income. The maximum contribution annually is $3,350 and $6,650 for individual and family coverage, respectively.2 As an individual 55 and older, they are able to make catch-up contributions if not yet enrolled in Medicare.
Health Savings Account distribution can be made regardless of time, and are not taxed for qualifying medical expenses. However, if they are not qualified medical expenses, they carry a 20% penalty, as well as regular income taxation. This is not the case if the Health Savings Account owner is dead, disabled, or eligible for Medicare. Funds are also transferrable from one Health Savings Account to another without income or penalty taxes.
- Mark Diamond, National Speaker and Senior Advocate