Blue KC - Health Savings Accounts (HSA) FAQs

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FAQs

Health Savings Account

Learn About the Benefits of a Health Savings Account.

These FAQs are presented as general information by Blue Cross and Blue Shield of Kansas City (Blue KC). Precise Health Savings Account (HSA) tax effects depend on federal law. Blue KC recommends you see your tax adviser for specific tax advice.

HSA General Information
What is a Health Savings Account (HSA)?
Am I eligible for an HSA?
How much does an HSA cost? Are there fees charged for the account and/or services?

HSA and Health Coverage
What is a qualified high-deductible health plan?
How do I enroll in a high-deductible health plan and open an HSA?
What other types of health coverage can I maintain without losing eligibility for an HSA?
What happens to my HSA funds if I no longer have a high-deductible health plan?

HSAs and Qualified Medical Expenses
What are qualified medical expenses?
Who is responsible for determining whether HSA funds are used for qualified medical expenses?
Can I use the funds in my HSA to pay for medical expenses incurred before I enrolled in my high-deductible health plan?
Can I use the funds in my HSA for my dependents' expenses if they are not covered by the high-deductible health plan?
How long do I have to use the funds in my HSA for qualified medical expenses?

HSA Debit Cards
How can I access my HSA funds to pay for a qualified medical expense?
How do I activate my HSA debit card?
What if my HSA debit card doesn't work or my transaction is declined?
How do I order additional debit cards or add people who may use my HSA debit card?
What should I do if my HSA debit card gets lost or is stolen?
Do I need to save my itemized receipts from making qualified medical expense purchases?

HSA Contributions
How can I make an HSA deposit?
What are the contribution limits to my HSA?
Can I make contributions through my employer on a pre-tax basis?
When can "catch-up" contributions be made to my HSA?
When is the deadline for contributions to an HSA for any particular year?
What happens when HSA contributions exceed the amount that may be deducted or excluded from gross income?
How are contributions treated for owners and shareholders of S corps?
How are contributions treated for partners in a partnership or limited liability company (LLC)?
May a self-employed person contribute to an HSA on a pre-tax basis?

HSA Taxes
How are distributions from an HSA taxed?
What is the tax treatment of an eligible individual's HSA contributions?
What is the tax treatment of employer contributions to an HSA?
What is the tax treatment of earnings on amounts in an HSA?
Will any tax advice be provided to me in connection with my HSA?
What happens to the funds in my HSA after I turn age 65?
What happens to the funds in my HSA upon my death?
What are the tax consequences of HSA distributions following my death?

Establishing an HSA and Beneficiaries
How do I designate or change the beneficiary of my HSA?
How do I establish an HSA?
Who can serve as an HSA custodian or trustee?

HSAs, Other Accounts and Investments
What are the rules regarding rollovers and transfers to my HSA?
What are the rules regarding the rollover of IRA funds into an HSA?
What are the rules regarding the rollover of FSA (flexible spending accounts) or HRA (Health Reimbursement Arrangements) funds into my HSA?
What are my HSA investment options?
Can I borrow against my HSA?

HSA Information
I am in the process of opening an HSA. How can I check the status of my account?
How do I update the personal information (i.e., mailing address) associated with my HSA?

HSA General Information

What is a Health Savings Account?
A Health Savings Account (HSA) allows members enrolled in a qualified high-deductible health plan to contribute funds on a tax-free basis into the member's account. A member's employer may also contribute funds to the account. These funds are used for payment of qualified medical expenses as defined by the IRS. Unused funds in an HSA roll over in the member's account at the end of each calendar year.

Am I eligible for an HSA?
You are eligible for an HSA if you are covered under a qualified high-deductible health plan, are not covered by any other health plan (with exception for certain types of permitted coverage), are not enrolled in Medicare benefits and cannot be claimed as a tax dependent on another person's tax return.

How much does an HSA cost? Are there fees charged for the account and/or services?
An HSA generally has a low monthly service fee used to maintain the account. Other fees may apply depending upon the services selected. A fee schedule will be provided for you with your enrollment kit from your HSA bank. For more information on HSA fees, contact your HSA bank.

HSA and Health Coverage

What is a qualified high-deductible health plan?
A qualified health-deductible health plan is a health plan with an annual deductible for an individual (a member) or a family (a member and covered tax dependents) that meet the minimum deductible amount published annually by the U.S. Treasury Department. The annual out-of-pocket expenses required by the high-deductible health plan also does not exceed the out-of-pocket maximums published by the U.S. Treasury Department. Out-of-pocket expenses include deductibles, copayments and other amounts the member must pay for, but do not include premiums or amounts incurred for non-covered benefits.

How do I enroll in a high-deductible health plan and open an HSA?
To enroll in a high-deductible health plan, complete the Blue KC application process. The Blue-Saver® PPO health insurance plan is a high-deductible health plan that allows you to establish an HSA as part of your health benefits. When you enroll in the Blue Saver plan, you may be offered the opportunity to establish a HSA with one of our preferred banks. You will be presented with appropriate banking authorizations and disclosures necessary for BlueKC to work with the bank that will establish your HSA. Please note all financial institutions offering HSA products must comply with the USA Patriot Act, requiring your HSA bank to collect and verify information about you when processing your HSA application.

Once your HSA has been established, you will be mailed a welcome kit and HSA debit card from the bank.

What other types of health coverage can I maintain without losing eligibility for an HSA?
You are still eligible for an HSA if you have a high-deductible health plan and one or more of the following:

Insurance that relates to liabilities from workers’ compensation laws, torts or ownership or use or property (such as automobile insurance).
Insurance for a specified disease or illness.
Insurance paying a fixed amount per day (or other period) of hospitalization.
Coverage (through insurance or otherwise) for accidents, disability, dental care, vision care or long-term care.

You may also have coverage under an Employee Assistance Program, and you may have a discount card that enables you to obtain discounts for healthcare services or products.

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

HSAs and Qualified Medical Expenses

What are qualified medical expenses?
Qualified medical expenses include doctor visits, hospital charges, chiropractic care, prescriptions, dental care, vision care, COBRA premiums and qualified long-term care insurance premiums.

Please note it is your responsibility to withdraw funds for qualified medical expenses and maintain receipts for those expenses according to the IRS guidelines. Failure to do so could result in income taxes and a 20 percent penalty.

Read the list and description of all qualified medical expenses.

Who is responsible for determining whether HSA funds are used for qualified medical expenses?
It is your sole responsibility to ensure HSA funds are used for qualified medical expenses. It is also your responsibility to determine the tax consequences of any distributions, for maintaining adequate records for tax purposes, and for paying any taxes and penalties arising as a result of any such distribution. Please contact a legal or tax adviser with questions.

Can I use funds in my HSA to pay for qualified medical expenses incurred before I enrolled in my high-deductible health plan?
No. You cannot use HSA funds to pay for qualified medical expenses incurred before you enrolled in a high-deductible health plan. In order to establish an HSA, you must enroll in a high-deductible health plan. Therefore, contributions to an HSA are not permitted before you enrolled in a high-deductible health plan and you cannot use HSA funds to pay for qualified medical expenses incurred prior to the date your HSA was established. Your eligibility to contribute to an HSA is determined by the effective date of your high-deductible health plan coverage.

Can I use funds in my HSA for my tax dependents’ expenses if they are not covered by the high-deductible health plan?
Yes, funds may be withdrawn and used to pay for qualified medical expenses for you and/or your tax dependent(s) without a tax penalty. For purposes of medical deductible of a child of divorced or separated parents, they can be treated as a dependent of both parents. Each parent can include the medical expenses he or she pays for the child, even if the other parent claims the child’s dependency exemption. Please consult a legal or tax adviser concerning questions you may have.

How long do I have to use the funds in my HSA for qualified medical expenses?
You can use your HSA funds to pay for eligible expenses incurred any time after you open your HSA. There is no time limit between when you incur the qualified expenses and when you withdraw the corresponding amount from your HSA. You may also elect to pay for current qualified medical expenses out-of-pocket, so that you may invest your HSA funds and grow the account for future use. It is recommended that you always save your itemized receipts and other paperwork to verify eligible expense for when you do withdraw funds, whether it is now or in the future.

HSA Debit Cards

How can I access my HSA funds to pay for a qualified medical expense?
Use your HSA debit card or other means provided by your HSA bank to pay for qualified medical expenses. You should only use the debit card at healthcare-related locations. This may include an Internet transaction as long as the items being purchased are qualified medical expenses. You may also use your HSA debit card for online capabilities such as online bill pay.

How do I activate my HSA debit card?
When you receive your HSA debit card in the mail from the HSA bank, you will receive instructions on activating the card. Please contact the HSA bank where you established your HSA regarding questions you may have about your HSA debit card.

What if my HSA debit card doesn't work or my transaction is declined?
If your debit card does not work or is declined, you may need to use another form of payment. A declined transaction may be due to any of the following reasons:

Your purchase was not considered a qualified medical expense under your HSA plan
Your HSA balance was too low and there were insufficient funds to cover the cost of your transaction

Please contact the HSA bank to discuss problems with your debit card.

How do I order additional debit cards or add people who may use my HSA debit card?
Please contact the HSA bank to order additional debit cards or add people who may use your HSA debit card.

What should I do if my HSA debit card gets lost or is stolen?
Please contact the HSA bank immediately if your debit card is lost or stolen.

Do I need to save my itemized receipts from making qualified medical expense purchases?
Yes, always retain your itemized receipts as proof of your qualified medical purchases. You will need the receipts if the IRS requests documentation to verify the funds in your HSA were used only for qualified medical expenses.

HSA Contributions

How can I make an HSA deposit?
Deposits to your HSA may be made directly with the HSA bank. If your employer allows payroll deductions, you may also make automatic deposits into your account. You may mail in a deposit by check or take advantage of wire transfer or electronic funds transfer. Please contact the HSA bank for more information on depositing funds into your account.

What are the contribution limits to my HSA?
The maximum amount that may be contributed to your HSA for any year is a certain amount established annually by the IRS. This amount depends on whether you have individual or family coverage under your qualified high-deductible health plan. The same annual contribution limit applies regardless of whether the contributions are made by an employee, an employer or both. You are allowed to make the full deductible HSA contribution for the year regardless of when you enroll in a high-deductible health plan as long as you maintain coverage under the high-deductible health plan for 12 months.

For 2012, the maximum HSA contribution for individual high-deductible health plan coverage is $3,100. The maximum HSA contribution for family coverage is $6,250.

If you are not covered by a high-deductible health plan for 12 months at the end of the calendar year in which you enrolled in the plan, you will be subject to income tax and a 10 percent excise tax on HSA contributions for the months not covered by the plan. Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same high-deductible health plan coverage for the entire year as you had on the first day of that last month. The total contribution for the year can be made in one or more payments at any time up to your tax-filing deadline (without extensions). However, if you wish to have a contribution made between January 1 and April 15 treated as a contribution for the preceding tax year, please contact the HSA bank.

Can I make contributions through my employer on a pre-tax basis?
If your employer offers a "salary reduction" plan (also known as a Section 125 plan or cafeteria plan), you can make contributions to your HSA on a pre-tax basis (meaning before income taxes and FICA taxes). If you make a contribution on a pre-tax basis, you cannot take the "above-the-line" deduction on your personal taxes.

When can "catch-up" contributions be made to my HSA?
If you are age 55 or older, you can make additional "catch-up" contributions to your HSA. The amount of this additional catch-up contribution is published annually by the U.S. Treasury Department. For 2012, the catch-up contribution amount is $1,000.

When is the deadline for contributions to an HSA for any particular year?
You may make HSA contributions for a particular year no later than the deadline, without extensions, for filing your federal income tax return for that year. For calendar year taxpayers, this is generally April 15 following the year for which the contributions were made.

What happens when HSA contributions exceed the amount that may be deducted or excluded from gross income?
A contribution made by you or your employer to an HSA that exceeds the amount allowed by law, or which is made during any year when you are not eligible to contribute, is called an "excess contribution." Excess contributions are not deductible by you or your employer and are included in your gross income for each year they remain in your HSA. In addition, excess contributions are subject to a six-percent excise tax. However, you may avoid the excise tax if you remove the excess contribution from your HSA, together with any net income attributable to the excess contribution, before the due date for filing your federal income tax return, including extensions, for the year in which the excess contribution was made. In that case, the net income attributable to the excess contribution would be taxable as income for the year in which the distribution is made, but the removed excess contribution would not be taxable as income to you. Rollover contributions do not count in determining whether an excess contribution has been made.

How are contributions treated for owners and shareholders of S corps?
Owners and officers with greater than 2% share of a Subchapter S corporation cannot make pretax contributions to their HSAs through the company by salary reduction. In addition, any contributions made to their HSAs by the corporation are taxable as income. However, they can make their own personal contributions to their HSAs and take the "above-the-line" deduction on their personal income taxes.

How are contributions treated for partners in a partnership or limited liability company (LLC)?
Partners in a partnership or LLC cannot make pre-tax contributions to their HSAs through the partnership by salary reduction. However, they can make their own personal contributions to their HSAs and take the "above-the-line" deduction on their personal income taxes.

May a self-employed person contribute to an HSA on a pre-tax basis?
Self-employed persons may not contribute to an HSA on a pre-tax basis and may not take the amount of their HSA contribution as a deduction for SECA purposes. However, they may contribute to an HSA with after-tax dollars and take the above-the-line deduction.

HSA Taxes

How are distributions from an HSA taxed?
Distributions from an HSA for the qualified medical expense of you or your spouse or tax dependents who are covered by the high-deductible health plan are generally excludable from income for federal tax income purposes if such expenses are not covered by insurance. Distributions used for any other purpose are includable in income and may also be subject to an additional 20 percent tax. This 20-percent penalty tax does not apply to distributions made after your death, disability or attainment of age 65.

What is the tax treatment of an eligible individual's HSA contributions?
When you make an eligible contribution to an HSA, the amount of your contribution (up to the maximum contribution limit) is deductible in computing your adjusted gross income. This means that your contributions are deductible whether or not you itemize your deductions.

Any person who may be claimed as a tax dependent on another taxpayer's return may not claim a deduction for a contribution to an HSA.

A special rule applies to certain married couples. If either spouse has family coverage under a high-deductible health plan, both spouses will be treated as having only the family coverage (and if such spouses each have family coverage under different plans, both spouses will be treated as having the family coverage with the lowest annual deductible). The amount allowed as a deduction after application of this rule will be divided equally between the spouses unless they agree on a different division.

What is the tax treatment of employer contributions to an HSA?
If your employer makes a contribution to your HSA, you are not allowed to deduct that contribution on your income tax return. Your employer, however, will be able to deduct the contribution up to your maximum contribution limit for that year. Although you cannot deduct your employer's HSA contribution, the contribution is not taxable to you or subject to income tax withholding or other employment taxes if it does not exceed your maximum contribution limit for the year.

What is the tax treatment of earnings on amount in an HSA?
Earnings on amounts in an HSA are not taxable prior to distribution from the HSA.

Will any tax advice be provided to me in connection with my HSA?
No, neither Blue KC nor the HSA bank will provide tax advice concerning your HSA. The tax consequences of your HSA, including all contributions to and distributions from your HSA, are your sole responsibility. Please contact a tax adviser concerning questions you may have.

What happens to the funds in my HSA after I turn age 65?
You can continue to use the funds in your account tax-free for out-of-pocket health expenses. If you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copayments 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. The one expense you cannot use your account for is 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 qualified medical expenses. If you do choose to use your account 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 percent penalty on the amount withdrawn.

What happens to the funds in my HSA upon my death?
You have the right at any time to designate one or more beneficiaries to whom distribution of your HSA will be made upon your death. You also have the right to revoke a prior beneficiary designation and, if desired, designate different individuals as beneficiaries. Please contact the HSA bank for beneficiary designation forms or for more information.

What are the tax consequences of HSA distributions following my death?
If your spouse is the named beneficiary of your HSA, your HSA becomes the HSA of your spouse upon your death, subject to the completion of documents as required by your bank. Your surviving spouse is not required to include any amount in gross income for tax purposes as a result of your death and he or she is subject to income tax only on those distributions that are not made for qualified medical expenses.

If someone other than your spouse is named the beneficiary of your HSA, the HSA will no longer be considered an HSA as of the date of your death. Rather the beneficiary is required to include the fair market value of the HSA assets as of the date of death in his or her gross income for the taxable year that includes the date of death. The included amount is reduced by the amount in the HSA used, within one year of your death, to pay your qualified medical expenses that incurred prior to your death.

If there is no named beneficiary of your HSA, the HSA will no longer be considered an HSA as of the date of your death, and the fair market value of the HSA assets as of the date of death is included in your gross income for the year of your death.

Establishing an HSA and Beneficiaries

How do I designate or change the beneficiary of my HSA?
You have the right at any time to designate one or more beneficiaries to whom distribution of your HSA will be made upon your death. You also have the right to revoke a prior beneficiary designation and, if desired, designate different individuals as beneficiaries. If no beneficiary is designated, the HSA bank will distribute the assets of your HSA upon your death to your estate. Please contact your bank for beneficiary designation forms or for more information.

How do I establish an HSA?
If eligible, you can establish an HSA with a qualified HSA custodian or trustee. No permission or authorization from the IRS is required. The custodian or trustee will furnish you a written HSA trust or custodial agreement.

Who can serve as an HSA custodian or trustee?
Any insurance company or bank can be an HSA custodian or trustee. Any other persons already approved by the IRS to be custodians or trustees of IRAs are automatically approved to be HSA custodian or trustees.

HSAs, Other Accounts and Investments

What are the rules regarding rollovers and transfers of my HSA?
You may withdraw a portion or all of the funds from one HSA and roll them into an HSA with another custodian or trustee. However, you are required to roll the funds into a new HSA within 60 calendar days of your receipt of the funds. You are allowed to make only one HSA rollover in a 12-month period. The 12-month period begins on the date you receive the distribution, not on the date you roll it into another HSA. You may also transfer your HSA funds directly from one HSA custodian or trustee to another without ever having direct custody or control of the funds. Rollover and transfer contributions are not deductible and do not count against annual contribution limits.

What are the rules regarding the rollover of IRA funds into an HSA?
You are allowed a one-time, tax-free, trustee-to-trustee transfer of IRA funds into your HSA if the following certain conditions are met:

The transfer of funds from the IRA to the HSA is made in direct trustee-to-trustee transfer
You are covered by a high-deductible health plan and remain eligible for 12 months after your IRA rollover. If you are not eligible for 12 months after the rollover, the funds transferred will be treated as taxable income and subject to a 10 percent excise tax
The IRA being rolled over into the HSA is a traditional or Roth IRA
The amount of the IRA rollover to the HSA does not exceed the maximum annual contribution limits. The amount transferred from your IRA, plus your employer contributions, plus your contributions will all apply against the maximum annual contribution and you must ensure the total of all these do not exceed the maximum annual contribution limits

What are my HSA investment options?
After establishing an HSA and reaching financial benchmarks set by the HSA bank, you may choose to maximize your potential wealth by electing investment options. For more information on HSA investment options, contact the HSA bank.

Can I borrow against my HSA?
No, you cannot borrow against or pledge funds in your HSA.

HSA Information

I am in the process of opening an HSA. How can I check the status of my account?
Please contact the HSA bank to check the status of your account as your HSA application is processed.

How do I update the personal information (i.e., mailing address) associated with my HSA?
Please contact the HSA bank to update your personal information.

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FAQs

Health Savings Account