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Health Savings Accounts

An Health Savings Account (HSA) is an account owned by a qualified individual, an employer’s employee or former employee. Both the employer and employee may make contributions to an HSA, up to a certain amount annually, and those contributions become the employee’s property. The contributions are used to pay for current or future medical expenses of the account owner, his or her spouse, and any qualified dependent claimed or that can be claimed on the employee's tax return. Medical expenses that are paid from the HSA are tax free. HSA owners may claim tax deductions for any contributions they make into the HSA. In addition, any contributions made to an employee's HSA by their employer may be excluded from that employee's gross income.


Qualifying for an HSA In order to qualify for and contribute to an HSA, an individual must:


• Be covered under a qualified high deductible health plan (see below);

• Be covered under no other medical plan or policy, except for limited exceptions (see below);

• Not be enrolled in Medicare; and

• Not be claimed as a dependent under someone else's tax return for that year.


An individual is considered "eligible" for an HSA for any given year as long as he or she meets the above requirements on the first day of the last month of his or her tax year (December for most people.)


HSA Maximum Contributions and HDHP Cost-sharing Limits


The table below outlines the maximum allowed HSA contribution amounts, as well as the minimum deductibles and out-of-pocket maximums for qualified high deductible health plans for the 2016-2018 plan years.




​2017 ​

​2018 ​

​Coverage Type







​Contribution Limits*







​Minimum Deductibles







​Maximum Out-of-Pocket









*NOTE on Contribution Limits: Eligible individuals age 55 and over at the end of the tax year may increase their maximum contribution by $1,000.


High Deductible Health Plan Requirement

To own a HSA, a qualified individual must be covered by a Qualified High Deductible Health Plan (QHDHP), and not be covered by other health insurance except for permitted insurance, such as: accidental, specific injury, disability, dental, vision or long-term care plans. An individual who can be claimed as a dependent on a tax return is not a qualified individual for ownership of an HSA. Also an employee’s participation in a health Flexible Spending Arrangement (FSA) or a Health Reimbursement Arrangement (HRA) disqualifies that individual and the employer from making contributions to the HSA. An owner of an HSA can, however, still participate in a limited-purpose, suspended, post-deductible, or retirement HRA or FSA.


In general, before any medical benefits can be paid by the plan, participating employees must meet the QHDHP’s deductible in full. This means there can be no deductible-waived benefits under the plan, or benefits subject to copays only. The exception to this rule is for preventive services. Qualified HDHPs can pay for preventive services before participating employees meet their deductibles as the Affordable Care Act mandates that certain preventive services be paid by the plan at no cost sharing to the employee. There are various services, items and medications that qualify as preventive, but the general rule set by the IRS states that a preventive service cannot be one used to treat any existing injury, illness or disorder. Examples of preventive care include, but are not limited to:


1. Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals.

2. Routine prenatal and well-child care.

3. Child and adult immunizations.

4. Tobacco cessation programs.

5. Obesity weight-loss programs.

6. Screening services. This includes screening services for the following:


a. Cancer.

b. Heart and vascular diseases.

c. Infectious diseases.

d. Mental health conditions.

e. Substance abuse.

f. Metabolic, nutritional, and endocrine conditions.

g. Musculoskeletal disorders. h. Obstetric and gynecological conditions.

i. Pediatric conditions.

j. Vision and hearing disorders.


In addition to the preventive services listed above, any procedure performed incidental to one of these accepted preventive services may also be considered "preventive" and not disqualify an HDHP if covered before the deductible has been met. For example, the removal of polyps following a routine colonoscopy is considered preventive if performed during the same visit.


Qualified HDHPs may also offer coverage for preventive drugs pre-deductible. Any drugs prescribed to high-risk individuals to control or prevent a disease that has not yet manifested itself may be considered preventive. For example, cholesterol-lowering medications are considered preventive for persons with high-cholesterol, in order to prevent heart disease or stroke.


NOTE: Embedded deductibles, which allow an individual with family coverage to meet only a lesser, individual deductible before plan benefits are paid, are allowed under qualified HDHPs. However, HDHP rules state that an embedded individual deductible must be equal to or higher than the set minimum family deductible for any given plan year.



HSAs are employee-owned accounts, and thus funds can be held and carried over by the employee if they are terminated or switch jobs.


Noncompliance Penalties and Tax Consequences

HSA funds can only be used for qualified medical expenses. Funds used for nonqualified expenses are taxable income, and the HSA owner is also subject to a 20% penalty (HSA owners age 65 or older are not subject to the penalty, but funds are still taxable if used for nonqualified expenses).


HSA contributions can only be made while the owner is covered under an qualified HDHP and has no other disqualifying medical coverage. While HSA owners can continue to use HSA funds for qualified medical expenses after losing HDHP coverage, they cannot make further contributions to the account. Any contributions are subject to taxation by the IRS.


Employers are also subject to penalties for noncompliance. Employer contributions to employee HSAs must be comparable, meaning the contributions must be consistent across all similarly situated participants (i.e., they cannot be arbitrary or discriminatory). If employer contributions are not found to be comparable, then the employer is subject to a 35% penalty on all aggregate contributions made.


This content is being provided as an informational tool. It is believed to be accurate at the time of posting and is subject to change. It is recommended that plans consult with their own experts or counsel to review all applicable federal and state legal requirements that may apply to their group health plan. By providing this information, Meritain Health is not exercising discretionary authority or assuming a plan fiduciary role, nor is Meritain Health providing legal advice.