Health Savings Accounts (HSA) - FAQs*

• For 2008, the annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,600 (self-only coverage) or $11,200 (family coverage).
• HDHPs can have no deductible for preventive care and higher out-of-pocket (co-pays & coinsurance) for non-network services.

Q: How do I know if an individual has an HSA-qualified health insurance policy?
A: The health insurance company can provide information about whether or not the plan is HSA-qualified. It is the responsibility of the individual to make sure he or she is covered by an HSA-eligible HDHP.

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Q: What medical expenses are allowed using an HSA?
A: In general, an individual can use the funds from an HSA on all medical, dental, vision expenses, chiropractic visits and acupuncture. Typically funds from the HSA cannot be used to pay insurance premiums, unless an individual is unemployed and collecting Federal unemployment benefits. A link to IRS Publication 502, which is the complete list of qualified expenses, can be found at www.bluehealthcarebank.com.

Q: Can funds from an HSA be used for non-medical expenses?
A: Yes, funds can be used for non-medical expenses but the withdrawn funds are then subject to all applicable income taxes and penalties.

Q: What are the advantages of an HSA?
A: To an employer

• Employee owned funds promote increased involvement in healthcare decisions.
• Provides employers and employees with tax benefits.
• HSA allows “matching” contribution options by employers and employees.
• Increased consumer choice
• Funds roll over year to year, eliminating the “use it” or “lose it” philosophy.
• Tax benefits on the contributions, earnings and distributions.
• Long term investment opportunity
• Portability

Q: When can distributions be made from an HSA?
A: HSA dollars can be taken at any time to pay for qualified expenses incurred after the HSA is open.

SECTION 2: FUNDING AN HSA

Q: How are HSAs funded?
A: Most HSAs are funded using pre-tax payroll deductions.
Individuals can choose a payroll election that will go to their HSA (similar to a flexible spending account). However, individuals can also contribute additional funds during the year as long as they recognize the IRS limit $2,900 for individuals or $5,800 for families in 2008.

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Q: Who can contribute to my HSA?
A: The account holder, employer, and a third-party (family member, friend, beneficiary, state government).

Q: How can an employer send contributions to an employee's HSA?
A: Employers can make contributions to an employee's HSA using a pre-tax payroll deduction. Employers can file transfer process a template (provided by Blue Healthcare Bank) to specify contribution amounts; we will generate the ACH or monies can be sent using ACH, wire or a traditional check. The preferred method for BHB is to use an ACH to transfer funds.

Q: Is the contribution an individual makes to a nonemployer sponsored HSA a deductible expense to the individual?
A: For individuals with a non-employer sponsored HSA, the HSA deduction will likely appear on the 1040 in the adjusted gross income section of the tax return. Contributions are tax free to individuals through an above the line deduction at the Federal level. State tax laws vary, so tax advisors should be consulted. They are pre-tax for an employer or employee in an employer-provided plan.

Q: Will an individual pay tax penalties on the monthly fees that BHS deducts from an HSA?
A: No. For HSAs,the IRS ruled that nominal bank and custodial fees withdrawn directly from the account are allowable withdrawals, and therefore, are not subject to taxes or penalties. We allow HSA members to choose their method of payment for custodial fees, with either a monthly debit from the account or by a check paid annually.

Q: How are HSA funds invested?
A: Blue Healthcare Bank offers the opportunity to invest a portion of your health savings account in a wide range of no-load investment choices. Once a member is enrolled in the investment program and has established an investment account, they will be able to make investment decisions to meet their investment style; from conservative to more aggressive.

In order to open an investment account, the HSA deposit balance must be at least $2,500. The minimum initial investment is $500. Subsequent minimum investments of $25 can be made if the HSA deposit balance maintains a balance of at least $2,000. (Monthly service fees apply).

INVESTMENTS ARE NOT FDIC INSURED

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SECTION 3: HSA FEES

Q: What fees apply to a Blue Healthcare Bank HSA?
A: With a BHB HSA, an individual participating in a group-sponsored HSA pays an administrative fee of a few dollars each month. The retail cost for an HSA (for an individual) is a little more. There is a set up fee based on how they enroll and after the account reaches a certain balance, the monthly maintenance fee is waived.

SECTION 4: REIMBURSEMENT

Q: How does the debit card work with the HSA?
A: The debit card is tied to the current balance in the HSA. Members can use the debit card to pay for medical expenses billed from their insurance company, a doctors' office or a pharmacy.

Q: Does the debit card work at other locations?
A: Yes, it will work wherever debit cards are acceptable. However, if purchases are made with the HSA debit card for non-medical expenses, the account holder will be subject to income tax an IRS penalty.

Q: Can the debit card be used at an ATM to get a cash advance?
A: No.

Q: How are expenses paid for when the debit card isn't used?
A: Account holders can always use their checkbook, online bill pay or request reimbursement for expenses by using a Withdrawal Request Form. Like all HSA forms, this form can be downloaded.

SECTION 5: ACCOUNT MAINTENANCE

Q: If an individual changes jobs or health plans can an HSA be moved to another account?
A: Yes, similar to a 401(k) arrangement, funds can be ‘rolled’ or transfered into another HSA.

Q: What happens to the money in an HSA upon death?
A: If the named beneficiary in an individual's will is the spouse, the spouse continues to access the health savings accounts funds tax-free for medical expenses and pay income taxes on any non-medical expense. If the beneficiary is anyone else they will generally owe income taxes when the assets move to them, but no penalty.

*The Bank will make reasonable efforts to update these FAQs as needed to reflect changes in federal regulations. However, these FAQs do not constitute legal advice and The Bank makes no warranties with respect to the same.

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