Details about the Health Savings Account (HSA)

A Health Savings Account (HSA) is an account members can use for qualified health care expenses.
Both the member and their employer can put money in an HSA. Once money goes into the account, it belongs to the member. The HSA is in the member's name, just like a personal checking or savings account.

The account grows over time.
Since the money always belongs to the member, even if he or she leaves the company, any unused funds carry over from year to year. The member never has to worry about losing funds. If a member doesn't use a lot of health care services now, the HSA funds will be there if he or she needs them in the future – even after retirement.

The HSA is also an investment opportunity.
With Humana’s HSA, the member's account can grow in an interest-bearing savings account, a money market account, a wide variety of mutual funds – or all three. Of course, funds are always available if needed for qualified health care expenses.

To be eligible to contribute to an HSA, the member must have an IRS-qualified High Deductible Health Plan (HDHP).
In addition to the HDHP requirement, the IRS has other rules about participating in an HSA. A member cannot have an HSA if any of the following are true:

• The member is covered by other insurance that pays for medical services, like coverage under a spouse's plan. This includes medical plans, Flexible Spending Accounts and Personal Care Accounts. If the spouse has a comprehensive FSA (one that covers more than a "limited purpose" like vision and dental), the member is not eligible for an HSA – even if the FSA dollars aren't used for the member.
  
  
• The member is enrolled for Medicare benefits.
  
  
• The member can be claimed as a dependent on another person's tax return.
  

Generally, members can put enough in the HSA to cover their entire deductible, and then the High Deductible Health Plan helps pay for health care after they meet the deductible. The annual contribution limit is based on IRS rules. In general, the total amount that goes in the account each year – from both the employee and employer – cannot be more than the IRS annual contribution limit. Members who are age 55 or older are allowed to make extra contributions each year.

Members can spend only the money that's actually in the account.
If health care expenses exceed the HSA balance, the member needs to pay the remaining costs another way, such as cash or personal check. He or she can request reimbursement after accumulating more money.

Members can use HSA funds for spouses and dependents – even if they aren't covered by the member's High Deductible Health Plan.

Members can use HSA funds for IRS-approved items

Examples include:

• Doctors' office visits
  
  
• Dental services
  
  
• Eye exams, eyeglasses, contact lenses and solution, and laser surgery
  
  
• Hearing aids
  
  
• Orthodontia, dental cleanings and fillings
  
  
• Prescription drugs and some over-the-counter medications
  
  
• Physical therapy, speech therapy and chiropractic expenses
  
  

More information about approved items, plus additional details about the HSA, is available on the IRS Web site at www.irs.gov.

Every time members use HSA funds, they should save a receipt in case the IRS asks for expense substantiation. If a member uses HSA funds for a nonqualified expense, he or she will have to pay taxes and penalties on the ineligible amount.

Members with an HSA can have a "limited" Flexible Spending Account (FSA) for dental and vision care, as well as certain preventive care services.

How it works example – single coverage

Lucy enrolls in a High Deductible Health Plan with:

• $1,500 single deductible
• 80 percent coinsurance for in-network providers

She also has a Health Savings Account. Even though Lucy and her employer can put up to $2,850 in a Health Savings Account, Lucy funds the account up to the deductible ($1,500):

• $500 from her employer
• $1,000 from Lucy's tax-free paycheck deductions

Year 1 Lucy's health care costs are higher than usual because she breaks her leg. Her expenses for the year total $2,715: Hospital doctor's services – $650 Hospital facility cost – $350 X-rays at hospital – $200 Specialist office visit – $315 Six physical therapy sessions – $1,050 Two prescriptions – $150 Here's how Lucy uses her HSA to pay for health care HSA funds $1,500 Total cost of services $2,715 Lucy uses HSA to pay deductible $1,500 Balance of cost of services $1,215 PPO plan pays 80% of costs $972 Lucy pays remaining 20% $243 HSA funds remaining $0 Summary When the accident happened, Lucy used the HSA dollars deposited so far to cover her deductible. She wrote a check for the rest and then got reimbursed from her HSA when more money went into the account. After Lucy used the HSA to meet her $1,500 deductible, her health plan kicked in to help her pay the remaining $1,215. The plan paid 80 percent coinsurance, and Lucy paid the other 20 percent out of pocket. Because she used all the money in her HSA, Lucy has a zero balance at the end of the year.

Year 2 Lucy's health care costs aren't as high as last year. She has an illness that requires two visits to the doctor's office and two prescriptions. Her expenses for the year total $435: Two office visits – $200 Two prescriptions – $235 Here's how Lucy uses her HSA to pay for health care HSA funds $1,500 Total cost of services $435 Lucy uses HSA to pay $435 HSA funds remaining $1,065 Summary Because her health care expenses were only $435, Lucy didn't use all of her HSA funds. She also didn't have to use any of her take-home pay to cover out-of-pocket costs. At the end of the year, she has $1,065 left – all of the money she put in, plus part of her employer's contribution. She can use the money tax-free for health care expenses in the future and even invest it tax-free.

These examples are for the purpose of illustration only. The amounts will vary, depending on the plan selected and whether the member has single or family coverage.

How it works example – family coverage

Doug chooses a High Deductible Health Plan that covers himself, his wife Tina, and their two children – 4-year-old John and newborn Julie. Their plan has...

• $2,500 family deductible
• 80 percent coinsurance for in-network providers

Even though Doug and his employer can put up to $5,650 in a Health Savings Account, Doug funds the account up to the deductible ($2,500):

• For the first year, Doug's employer contributes $500, and Doug adds another $2,000 in tax-free paycheck deductions.
• For the second year, Doug's employer deposits another $500. Doug adds $2,000 to the account through tax-free paycheck deductions. He also has the $1,725 left over from Year 1.

Year 1 Both children get sick once during the year. Not surprisingly, they spread the illness to their dad – but Tina manages to avoid it. Doug, John and Julie each visit the doctor once. Doug and John need a prescription to treat the illness, and John also gets some lab tests. The family's expenses for the year total $775: Three doctor's office visits – $300 Lab tests – $100 Three prescriptions – $375 Here's how Doug uses an HSA to pay for health care HSA funds $2,500 Total cost of services $775 Doug uses HSA to pay $775 HSA funds remaining $1,725 Summary Because the family's health care expenses were only $775, Doug didn't use all of his HSA. He spent his employer's $500 contribution, plus $225 of the money he put in tax-free. At the end of the year, he's spent none of his take-home pay on out-of-pocket costs, and he still has $1,725 left to use for future health care expenses.

Year 2 This year, John is injured – leading to X-rays, a three-day hospital stay, knee surgery and two prescription drugs. On top of that, both Tina and Julie get sick and have to go to the doctor. The family's expenses for the year total $7,710: Hospital care – $3,000 X-rays – $250 Surgeon and anesthesiologist – $4,000 Two doctor's office visits – $200 Two prescriptions – $260 Here's how Doug uses an HSA to pay for health care HSA funds $4,225 Total cost of services $7,710 Doug uses HSA to pay deductible $2,500 Balance of cost of services $5,210 PPO plan pays 80% of costs $4,168 Doug pays remaining 20% with HSA $1,042 HSA funds remaining $683 Summary Doug used the $2,500 in his HSA to meet the plan's deductible, leaving $1,725 in his account. After meeting the deductible, the family's health benefits kicked in to pay 80 percent of the remaining health care costs. Doug paid the other 20 percent with his HSA. He didn't have to use any of his take-home pay to cover out-of-pocket costs, and he still has $683 left to use for future health care expenses.

These examples are for the purpose of illustration only. The amounts will vary, depending on the plan selected and whether the member has single or family coverage.