Health Savings Accounts (HSA) - FAQs*

Health Savings Account
Employer Frequently Asked Questions

What is a Health Savings Account (HSA)?
Who can get an HSA?
Why should I add an HSA Plan?
What is Blue Healthcare Bank roll with my employees’ HSA?
Can I contribute to my employees’ HSAs?
Our company wants to offer “matching” contributions, can we do that?
What are the Tax-Advantages of HSAs?
How do account holders access funds held by Blue Healthcare Bank?
What happens if the contribution amount exceeds the maximum amount allowed in a given tax year?
Is there an exception to the contribution limits?
Do I need to verify that distributions from employee HSAs were used for qualified services?
Are HSAs portable?
Do account holders have to transfer their HSA funds when they change jobs?
Can HSA funds be rolled over from year-to-year?
Can funds to cover administration fees be added to the account in excess of the deductible amount? If so, are these funds pre-tax?
I don’t offer health insurance, but some of my employees have opened HSAs and I’d like to help them out, what can I do?
Who controls the use of funds in HSAs?
Can HSA funds be used to pay health insurance premiums?
Is an HSA an ERISA program?

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SECTION 1: GENERAL PRODUCT OVERVIEW

What is a Health Savings Account (HSA)?
An HSA is a tax-advantaged account that can be used to pay for qualified health expenses on a tax-free basis. Contributions to an HSA can be made only under a qualified High-Deductible Health Plan. Funds in an HSA accumulate over time with interest. They are tax free, portable, and can be used to pay for non-health expenses on a taxable basis.

Who can get an HSA?
HSAs improve on Medical Savings Accounts (MSA) because HSAs are available to everyone, not just the employees of small businesses and the self-employed. However, there are a few requirements a person must meet to be eligible for an HSA, including:

• Be covered by a High-Deductible Health Plan.
• Not be covered by another Health Plan (except vision and dental coverage).
• Not receive Medicare benefits.
• Not be claimed as a dependant on another person’s tax return.

Why should I add an HSA Plan?
Health Savings Accounts provide you the ability to offer more affordable premiums while providing your employees with an attractive employee benefits plan. HSAs combine a high deductible health plan with a tax favored health savings account, which is used to help pay expenses towards the deductible.

By establishing a Health Savings Account (HSA) at your company, in conjunction with a high-deductible health plan, you’re allowing your employees to take healthcare back into their own hands. This way they can make decisions that are right for them personally.

Less Administrative Responsibility
Unlike other healthcare financing options, you are not responsible or liable for your employee’s account once it is opened. You do not have a claims administration or adjudication process and do not have to maintain records for the IRS. However, our knowledgeable, dedicated customer service staff is available to assist your employees with any questions.

What is Blue Healthcare Bank roll with my employees’ HSA?
Blue Healthcare Bank is the custodian of your employees’ accounts. We will facilitate and service their accounts.

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SECTION 2: FUNDING AN HSA

Can I contribute to my employees’ HSAs?
Under HSA legislative guidelines, if you choose to make contributions to your employees’ HSAs, it is no longer necessary that non-highly compensated and highly compensated employees receive the same dollar amount or percentage amount of their deductible.

Yearly contributions are limited to the High-Deductible Health Plan’s annual deductible, subject to a cap of $2,900 for individuals and $5,800 for families in 2008. Individuals age 55 – 64 can make additional yearly “catch-up” contributions to help save for future medical expenses.

Our company wants to offer “matching” contributions, can we do that?
Yes, but your company can only offer “matching” contributions through a Section 125 plan. Remember that the non-discrimination rules still apply.

What are the Tax-Advantages of HSAs?
HSAs are generally not taxed and the use of the funds is tax-exempt, provided they are used for qualified expenses. Earnings on amounts in an HSA are not taxable.

HSAs not only allow you and your employees to make contributions and earn interest tax free, but the distributions are also tax free as long as they’re used for qualified medical expenses.

Employee contributions can be made to HSAs on either after-tax or pre-tax basis. If made on an after-tax basis they should be counted as an above-the-line deduction on their tax return, effectively making their contributions tax-free. If they want to make the contribution pre-tax it can be done through a Section 125 (also called a “salary reduction” or “cafeteria plan”).

Contributions made by you to your employees’ HSAs are treated as employer-provided coverage for medical expenses under an accident or health plan. Thus, they are excludable from your company’s gross income, not subject to withholding for income tax and not subject to other employment taxes.

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SECTION 3: REIMBURSEMENT

How do account holders access funds held by Blue Healthcare Bank?
Account holders can withdraw funds from their HSA with a check, a Debit Card, or online bill pay.

What happens if the contribution amount exceeds the maximum amount allowed in a given tax year?
Amounts that exceed the maximum contribution are not eligible for deduction from the employee’s gross income. An additional excise tax will be imposed on the excess amount for each taxable year. (Certain exceptions apply)

An account holder may recover excess amounts to avoid the excise tax by taking a distribution from the HSA to bring the total below their maximum contribution limit. This must be done before the employee’s tax filing day.

Is there an exception to the contribution limits?
Yes. Individuals 55 and older who are covered by an HDHP can make “catch-up” contributions each year until they enroll in Medicare. The additional “catch-up” contributions to HSA allowed are as follows: 
2008 - $900
2009 and after - $1,000

Do I need to verify that distributions from employee HSAs were used for qualified services?
No. Account holders are solely responsible to ensure that their distributions are used for qualified expenses. The IRS may request receipts from covered transactions during an audit, so employees need to keep their receipts.

Employers and HSA administrators are NOT liable for the misuse of HSA funds by plan participants.

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SECTION 4: ACCOUNT MAINTENANCE

Are HSAs portable?
Yes. Account holders can take their HSAs with them when they move to a different employer. Funds can be kept at Blue Healthcare Bank or moved to another HSA at a different institution. In any case, their saved funds are not forfeited.

Do account holders have to transfer their HSA funds when they change jobs?
No. Account holders may keep their HSA with Blue Healthcare Bank or move their monies to an HSA at any other institution. It’s completely up to them.

Can HSA funds be rolled over from year-to-year?
HSAs don’t have a “use it or lose it” rule. HSA balances automatically roll over from year to year, allowing you and your employees to budget for health expenses and build up savings to cover qualified medical expenses.

Can funds to cover administration fees be added to the account in excess of the deductible amount? If so, are these funds pre-tax?
No, but employers can pay the administration fees directly. Please contact customer service at 1-800-663-BLUE (2583) if this is something you are interested in doing.

I don’t offer health insurance, but some of my employees have opened HSAs and I’d like to help them out, what can I do?
Your company can make pre-tax contributions to your employees’ HSAs as long as you do so for all eligible employees. However, the comparability rules apply. If you have a Section 125 plan, then the non-discrimination rules apply.

Who controls the use of funds in HSAs?
The member controls the use of funds in an HSA and can decide when and how much to contribute (up to the allowable maximums). Individuals can also decide which custodian or trustee will hold the account, whether to invest any of the money in the account, and which investments to make.

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Can HSA funds be used to pay health insurance premiums?
Individuals can use HSAs to pay for the following types of health coverage:

• Cobra continuation coverage
• Health coverage purchased while an individual is receiving unemployment compensation.
• Qualified long-term care insurance.
• When age 65 or older, premiums for any health insurance except Medicare supplemental policies (also known as Medigap).

Is an HSA an ERISA program?
No. Even if an employer contributes to the plan and offers payroll deductions through a cafeteria plan, the Department of Labor has clarified that an HSA in not an ERISA program. This will remain true as long as the plan is completely voluntary, the employer does not impose conditions on the use of funds, does not make or influence investment choices, does not represent that the HSA are an employee welfare benefit plan under ERISA, does not limit an employee’s ability to move HSA funds to another HSA custodian and does not accept any payment or compensation in connection with an HSA.

*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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