Health Savings Account (HSA)
A Health Savings Account (HSA) is a special tax-exempt trust or custodial account created by the Medicare Prescription Drug and Modernization Act in December 2003. The act allows eligible medical expenses to be paid for with pre-tax dollars. An HSA works together with a qualifying high-deductible health plan, giving the employee more control over his or her health care decisions.
Who is Eligible?
Any "eligible individual" can establish an HSA. The Internal Revenue Code, Section 223, defines who is eligible to participate in a Health Savings Account (HSA), and state law defines who is eligible for a high-deductible health plan (HDHP). BCBSKS will enroll an individual in a qualifying high-deductible health plan (HDHP) based on the individual's representations of eligibility.
An "eligible individual" means, with respect to any month, any individual who:
- Is covered under a qualifying high-deductible health plan on the first day of any month.
- Is also not covered under another health plan that is not an HDHP (with certain exceptions for plans providing certain limited types of coverage).
- Is not entitled to benefits under Medicare (generally has not yet reached age 65).
- May not be claimed as a dependent on another person's tax return.
It is the individual's responsibility to advise BCBSKS immediately should he or she become ineligible for an HSA or enrolls in another HSA.
How the HSA Works
- The employer elects a qualifying high-deductible health plan and can contribute money to an HSA. Employees may also contribute to the HSA.
- The employee uses money in the account to pay for qualified medical expenses not covered by the high-deductible health plan.
- Employee has access to online tools and resources to manage their health, track services received under their health insurance program and verify funds available in their HSA.
- Unused money in the account can be rolled over from one year to the next, earning compound interest.
- The rollover feature allows employees to save for future medical expenses.
Blue by Design HSA:
- Employer contributions are excluded from taxable income and employment taxes do not apply.
- Employee contributions are tax deductible.
- Tax-free withdrawals can be made for qualified medical expense.
- Contributions remain in HSA from year to year until they are used. No “use it or lose it” provision.
- Account is owned by the employee — it can go with him or her, even if employee terminates.
- Frequently Asked Questions: Review the answers to some common questions about health savings accounts.