Health Savings Account FAQs

Account Basics

What is a Health Savings Account (HSA)?

A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their healthcare. HSAs enable you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

You must be covered by a qualified High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can then be put into the Health Savings Account. You own and control the money in your HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You also decide what types of investments to make with the money in the account in order to make it grow.

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What are the benefits of establishing an HSA?

  • Tax Savings - An HSA provides you with triple tax savings:
    • Tax deductions when you contribute to your account and/or tax free income when your employer contributes to your account;
    • Tax free earnings through investments; and,
    • Tax free withdrawals for qualified medical expenses.
  • Affordability - A qualified High Deductible Health Plan – which is accompanied by an HSA — typically carries higher deductible, but lower monthly premiums. Savings from lower premiums can be put toward funding the HSA.
  • Flexibility - You can use the funds in your account to pay for current medical expenses or save the money for future needs. Money saved can be invested and your account can grow through tax free investment earnings. You also have control over how much money to contribute to the account and which medical expenses to pay from the account.
  • Ownership and Portability - HSAs are owned by you, not your employer. Additionally, accounts are completely portable meaning you can keep your HSA even if you change jobs, change your medical coverage or become unemployed.

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How does an HSA work? 

  • Funding. You and your employer may contribute to your HSA on a pre-determined schedule throughout the year.
  • Accessing Funds. When you have an eligible health care expense, pay for them with your payment card, or pay out-of-pocket and request reimbursement online or using the mobile app. Remember to always keep your receipts. Even if they are not needed for substantiation, you may need them for an IRS audit.
  • Requesting Reimbursement. When you don’t use your payment card, it is quick and easy to submit requests for reimbursements and upload receipts online or using the mobile app.
  • Reimbursement Processing. We will promptly process your request and reimburse you either by check or direct deposit if you sign up for that feature. Please note that you will receive your money sooner if you use direct deposit.
  • Account Management. Log on to your online or mobile account regularly to check your account balance, review claims activity, and access valuable tools.

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Eligible Expenses

What types of medical expenses are eligible under an HSA? 

The rules for funding and accessing funds in an HSA are legislated by the IRS and are tax-free only if used for health care expenditures, but there are literally thousands of products and services that meet the approved health care expenditures requirements in Section 213(d) Medical Expenses as defined in the IRS code.

Qualified medical expenses under an HSA are defined as: medical copayments or coinsurance, long-term care costs, dental care costs, vision care costs, prescriptions medications and some over-the-counter medications. HSA funds can also be used to pay for COBRA or retiree medical insurance premiums. For a list of approved health care expenditures, please refer to Eligible Expenses .

Examples of expenses that are not HSA eligible include gym memberships, nutritional supplements, cosmetic procedures and surgeries.

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What happens if I use the account for a non-eligible expense?

If you use the account for a non-eligible expense, the funds used for that expense will be taxed since their initial contribution to the account was tax-free. In addition, if you are under the age of 65, you will also be subject to a 20% tax penalty.

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Who decides whether the money I’m spending from my HSA is for a “qualified medical expense”?

You are responsible for that decision, and therefore should familiarize yourself with what qualified medical expenses are. You should also keep your receipts in case you need to defend your expenditures or decisions during an audit.

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Can I use my HSA to pay for medical expenses incurred before I set up my account?

No. You cannot reimburse qualified medical expenses incurred before your account is established. We recommend you establish your account as soon as you are eligible to do so.

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Can I withdraw money from my HSA for other purposes?

You can withdraw money from your HSA at any time for any purpose. If the money is used for an ineligible expense (whether medical or non-medical), the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 20% tax penalty. If you are 65 or older at the time of withdrawal, then you are free to withdraw money from your HSA for any purpose. You will have to pay the applicable income tax but there will be no additional tax penalty.

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Contributions and Investment Options

How much can I contribute to my HSA each year?

In 2014, the maximum contribution that can be made for employees with single coverage is $3,300, and the maximum contribution for employees with family coverage is $6,550. In 2015, the maximum contribution that can be made for employees with single coverage is $3,350, and the maximum contribution for employees with family coverage will rise to $6,650.

Individuals age 55 or older (and not yet enrolled in Medicare) can make additional “catch-up” contributions of up to $1,000 per person, which can provide extra help to many early retirees (see below).

Both individuals and employers can contribute to HSAs. Unspent HSA funds rollover into the next year.

Please note: These amounts are indexed annually for inflation. If you make a contribution for the entire tax year during your first year of HSA eligibility – when you only have part-year coverage – then you must remain in an HDHP and subsequently eligible for the HSA through the next full calendar year or must include the amount of this contribution (above and beyond what they could traditionally contribute) in gross income and be subject to an additional 10% tax.

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What happens if I become eligible to contribute to an HSA mid-year (not January 1st)? What is my maximum contribution?

You may make full year’s contribution into the HSA, even if you are eligible for only part of the year. If you make a contribution for the full year when you only had partial year HSA-eligibility, you must remain HSA-eligible through the last month of the following calendar year to avoid tax and penalty.

To be HSA-eligible, you must be covered by a HSA-qualified high deductible health plan and not be covered by any non-qualified health plans. Failure to maintain HSA eligibility (for reasons other than death or disability) for the required amount of time will result in income tax and a 10% additional tax on the contribution amounts attributable to the months before you had HDHP coverage and were HSA eligible.

If you think you may not remain HSA-eligible for the required amount of time, you may choose to make a partial year contribution (maximum contribution divided by 12 months multiplied the number of months eligible) to avoid taxes and penalty.

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Can I make changes to the amount I contribute to my HSA during the plan year?

You can change the amount you contribute to your HSA at any time during the plan year. If you are changing the amount contributed via payroll on a pre-tax basis, check with your employer.

You can also make non-payroll contributions changes using the Contribution Center in your online account. This option allows you to make or change contributions on a recurring basis or one-time basis. Note: Contributions via the Contribution Center are made post-tax and can be deducted at tax time.

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Can my employer contribute to my HSA? 

Contributions to HSAs can be made by you, your employer, or both. All contributions are aggregated to determine whether you have contributed the maximum allowed (see above). If your employer contributes some of the money, you can make up the difference. If your employer makes a contribution to your HSA, the contribution is not taxable to you the employee (excluded from income).

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What catch-up contribution options are available to me if I am over 55?

Individuals 55 and older who are covered by an HDHP can make additional catch-up contributions each year until they enroll in Medicare. The additional “catch-up” contribution limit is $1,000.

If you turned 55 partway through the year, and had HDHP coverage for the full year, you can make the full catch-up contribution regardless of when your 55th birthday falls during the year. If you did not have HDHP coverage for the full year, you must pro-rate your “catch-up” contribution for the number of full months you were “eligible”, i.e., had HDHP coverage.

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If both spouses are 55 and older, can both spouses make “catch-up” contributions?

Yes, if both spouses are eligible individuals and both spouses have established an HSA in their name. If only one spouse has an HSA in their name, only that spouse can make a “catch-up” contribution.

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What investment options will I have with my HSA?

You may have up to three basic choices if you decide to buy into an HSA: 1) an interest bearing account, 2) a Money Market Account, or 3) a Mutual funds account.

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Does an HSA have a mandatory distribution requirement?

No. Unlike 401(K)s and IRAs, there are no mandatory distribution requirements for an HSA.

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What information is reported to the IRS?

The HSA custodian or trustee is required to report the total contributions made to your HSA each year as well as the total amount of funds taken from the account each year. This information is reported on Form 5498 and Form 1099-SA respectively; both forms must be sent to you as the account holder and to the IRS.

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Health Insurance Coverage

Can I use an HSA if I have health insurance?

Yes. The HSA is designed to cover expenses not paid by your health plan including deductibles, coinsurance and copayments as well as many expenses your health plan may not cover such as acupuncture, LASIK eye surgery and some over the counter medicines. While you can use money accumulated in an HSA at any time for eligible expenses, you can only set up and contribute to an HSA while covered under a qualified HDHP.

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What is a High Deductible Health Plan (HDHP)?

A deductible is the amount of dollars that you must pay for covered healthcare expenses before your health plan will provide coverage. A high deductible health plan (HDHP) is an insurance plan that has a higher than average deductible. These types of plans also have annual limits on how much you have to pay out-of-pocket in the form of deductible, copayments and coinsurance fees.

You must have a qualified HDHP if you want to open and contribute to an HSA. For 2014, in order for a health plan to be HSA qualified, it must have at least a $1,250 individual deductible and a $2,500 family deductible. For 2015, the limits are at least a $1,300 individual deductible and a $2,600 family deductible.

The annual out-of-pocket maximum for 2014 cannot exceed $6,350 for individual coverage and $12,700 for family coverage. The annual out-of-pocket maximum for 2015 cannot exceed $6,450 for individual coverage and $12,900 for family coverage.

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What happens to the money in my HSA if I no longer have HDHP coverage?

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds. Once you discontinue coverage under an HDHP and/or get coverage under another health plan that disqualifies you from an HSA, you can no longer make contributions to your HSA, but since you own the HSA, you can continue to use it for future expenses.

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Using Your Account

How can I find out my account balance and review transactions?

Account Balance and Claims Status information is available several ways:

  • Use the mobile app, CYC mobile, or log on to your online account at any time for balance information. Your mobile and online accounts are secure and updated in real time.
  • Call Customer Service at any time for automated balance information.
  • Customer Service representatives are available to assist you 24 hours a day, seven days a week.

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How will I be able to use my HSA funds? 

You will receive a payment card to access your HSA. You can also pay for eligible expenses with any other form of payment and request reimbursement from your online or mobile account.

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How long do I have to use my HSA for eligible expenses?

You can use your HSA to pay for eligible expenses incurred any time after you opened your HSA. There is no time limit between when you incur the qualified expenses and when you withdraw the corresponding amount from your HSA. Some people, called HSA savers, pay for current expenses out of pocket so that they can invest their HSA money and grow the account for future use. You should always save your itemized receipts and other paperwork to verify eligible expenses for when you withdraw funds, whether it is now or at some point in the future.

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What happens if I leave the company or retire during the plan year?

HSAs are completely portable, which means you retain ownership of the funds after you leave the company. If your employer paid the administrative costs, you may be responsible for them after you terminate your employment. Otherwise, your services remain the same.

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What happens to the money in my HSA after I turn age 65?

You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, co-pays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. You cannot use your account to purchase a Medicare supplemental insurance or “Medigap” policy.

Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 20% penalty on the amount withdrawn.

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