Health Savings Account (HSA)
A Health Savings Account (HSA) is available only when you enroll in the HDHP medical plan option. HSAs are designed to allow individuals to use tax-favored contributions to pay for eligible healthcare expense.
How HSAs work
When you elect coverage under the HDHP option, an HSA will be established for you. This account will help you pay for certain eligible healthcare expenses, along with expenses not covered by the plan, such as over-the-counter medications.
For 2010-2011, if you are an active employee, you may contribute pre-tax dollars up to $3,050 for individual coverage, and $6,150 for family coverage (less any contributions made by your employer). You can also make an additional $1,000 “catch-up” contribution if you are 55 or older. All money deposited in your account, either by you or your employer, will earn interest just like a savings account, but on a tax-free basis. And, unlike an FSA account, your money is not lost if you do not spend it by the end of the year.
If you elect the HDHP, you must meet the annual deductible before the plan pays a prescription drug benefit, with the exception of certain preventive medications and medical services not subject to the deductible.
Special Note: There are certain HSA eligibility requirements, restrictions, and tax considerations dictated by federal law. For more information, call the HSA administrator, Health Equity, at 1-866-346-5800.
Eligible healthcare expenses
An HSA helps you pay for certain healthcare expenses that are not otherwise covered by the plan, including your annual deductible. In general, eligible healthcare expenses include any non-reimbursed medical, dental, or vision expense that can be deducted on your individual tax return if you itemize deductions (Eligible deductions are described in IRS Publication 502), for example:- Co-payments and coinsurance amounts;
- Prescription drugs;
- Additional amounts you pay when you do not use an in-network provider (for example, amounts over “reasonable and customary”); and
- Medicare premiums (including Part A, Part B, Part D, and Medicare managed care) or employer-sponsored health coverage premiums, including premiums for post-employment COBRA coverage.
Deductible Requirements for HDHP Participants
Effective July 1, 2010, participants enrolled in the HDHP medical plan option must first meet the annual deductible before the plan pays benefits for medical and prescription drugs. Medications that are exempt from meeting the deductible requirement include preventive medications for hypertension, high cholesterol, and other conditions. Visit our partners page for a complete list of medications that are exempt from this requirement.
How to enroll in a HSA
If you elect the HDHP medical option, there are additional enrollment materials you will need to complete to have your HSA established. Contact Arizona Public Employers Health Pool at (800) 718-8328 for more information.
Getting reimbursed
The amount available to you to pay eligible healthcare expenses cannot exceed the amount in your HSA at the time of withdrawal. If you pay for expenses through your HSA, you cannot deduct that expense on your individual tax return. Also, if you use the money in your HSA for a non-eligible expense, that distribution will be taxed, generally with a 20% penalty effective January 1, 2011. When you enroll in the HDHP option, you will receive more information about how to access the money in your HSA to pay for eligible healthcare expenses, as well as how you can make contributions, if eligible. In many instances, paying for eligible healthcare expenses from your HSA is as easy as using your special HSA debit card.
Once money is deposited in your HSA, it's yours-even when you are no longer eligible for coverage under the plan. If you don't use all the money in your account, your account balance will continue to grow each year-and you won't have to pay taxes on any interest earned. This money can be used in years when you have larger healthcare expenses. Or at retirement, you can use the money to help pay for retiree healthcare expenses. There is no "use-it-or-lose-it" provision; the money in your account is yours until you choose to use it.
Tax considerations
With a HSA, you are responsible for determining whether or not an expense is eligible to be paid from your HSA. In addition, you cannot claim a tax deduction for any healthcare expense reimbursed from your HSA. The IRS determines the types of healthcare expenses that are allowed for reimbursement from a HSA.