Individual Insurance: Health Savings Accounts

Health Savings Accounts

Using Your HSA

You can use money in your HSA to pay for any qualified medical expense permitted under federal tax law. This includes most medical care and services, dental and vision care. Generally, you cannot use your HSA to pay for medical insurance premiums, except specific instances, including:

• Any health plan coverage while receiving federal or state unemployment benefits

• COBRA continuation coverage after leaving employment with a company that offers health insurance coverage

• Qualified long-term care insurance

• Medicare premiums and out-of-pocket expenses, including deductibles, copays and coinsurance for:

  • Part A (hospital and inpatient services)
  • Part B (physician and outpatient
  • services)
  • Part C (Medicare HMO and PPO
  • plans)
  • Part D (prescription drugs)

You can use your HSA to pay for medical expenses for yourself, your spouse or your dependent children, even if your dependents are not covered by your HDHP. Any amounts used for purposes other than to pay for qualified medical expenses are taxable as income and subject to an additional 20 percent penalty. Examples include:

• Medical procedures and expenses not considered qualified under federal tax law

• Over-the-counter drugs and medications (except insulin)

• Other types of health insurance unless specifically described above

• Medicare supplement insurance premiums

• Expenses not health-related

After you turn 65, the 20 percent additional tax penalty no longer applies. If you become disabled and/or enroll in Medicare, the account can be used for other purposes without paying the additional penalty.

Advantages of HSAs

Security – Your HSA can provide a buffer for unexpected medical bills.

Affordability – In most cases, you can lower your health insurance premiums by switching to health insurance coverage with a higher deductible.

Flexibility – You can use your HSA to pay for current medical expenses, including expenses that your insurance may not cover, or save your funds for future needs,

such as:

• Health insurance or medical expenses if unemployed

• Medical expenses after retirement (before Medicare)

• Out-of-pocket expenses when covered by Medicare

• Long-term care expenses and insurance

Savings – You can save the money in your HSA for future medical expenses and grow your account through investment earnings.

Control – You make the decisions regarding:

• How much money you will put in the account

• Whether to save the account for future expenses or pay current medical expenses

• Which medical expenses to pay from the account

• Which financial institution will hold the account

• Whether to invest any of the money in the account

• Which investments to make

Portability – Accounts are completely portable, meaning you can keep your HSA even if you:

• Change your medical coverage

• Change jobs or become unemployed

• Move to another state

• Change your marital status

Ownership – Funds remain in the account from year to year, just like an IRA. There are no “use it or lose it” rules for HSAs.

Tax Savings – An HSA provides you triple tax savings:

1. Tax deductions when you contribute to your account

2. Tax-free earnings through investment

3. Tax-free withdrawals for qualified medical expenses

What Happens to My HSA When I Die?

• If you are married, your spouse becomes the owner of the account and can use it as if it were his or her own HSA.

• If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes).

Opening Your HSA

Banks, credit unions, insurance companies and other financial institutions are permitted to be trustees or custodians of these accounts. Other financial institutions that handle IRAs or Archer MSAs are also automatically qualified to establish HSAs.


To learn more about health savings accounts or how to get started, contact Koehler, Koehler Inc. today.