Health Savings Account Q&A

This information is intended to provide general guidance for members’ common questions about MUST. The Summary Plan Description document, related amendments, and Schedule of Medical Benefits may supersede this general information for specific eligibility and benefit questions.

1. What is a Health Savings Account (HSA)?
The Health Savings Account, or HSA, is a tax-favored way to put aside money for health expenses. Like a Flexible Spending Account (FSA), the employee can spend the funds on a wide variety of qualifying medical expenses as defined by the IRS. However, unlike the FSA, the employee does not lose any unspent funds. In fact, the money in the account always belongs to the participant, even if he/she leaves employment.

There are several investment options that can provide tax-free growth for funds in the HSA. In this way, an HSA is similar to an IRA or 401(k) retirement plan, except that the participant does not have to wait until retirement to spend it. He or she can choose to spend the money today, or can let the account build for future medical emergencies. The money is never taxed as income if spent on qualifying medical expenses. If HSA funds are spent on non-qualifying expenses, the participant must pay income tax on the amount and if he/ she is under age 65 a 20% penalty will also apply.

To open an HSA, the participant must be enrolled in a qualifying plan (e.g., MUST's HM or HE plans) and cannot be enrolled in other medical coverage (including Medicare). The plan must meet federal guidelines and, therefore, not every health plan that has a high deductible is considered an HSA-qualified plan. MUST has developed a variety of HSA-qualified health plans that meet the federal criteria.

2. Who can have an HSA?
To open an HSA, the participant must be enrolled in a qualifying health plan (HM or HE) and cannot be enrolled in other medical coverage (including Medicare). The plan must meet federal guidelines and, therefore, not every health plan that has a high deductible is considered an HSA-qualified plan. MUST has developed a variety of HSA-qualified health plans that meet the federal criteria.

Please note that IRS rules generally prohibit having both a Flexible Spending Account (FSA) and an HSA, unless the Flexible Spending Account can only be used for a limited purpose, such as dental, vision, or child care.

3. How do HSA-qualifying High Deductible Health Plans compare to other MUST plans?
These plans provide coverage similar to other MUST plans, including preventive care. Higher deductibles generally equate to lower premiums, so the premium for High Deductible Health Plans are usually lower than they would be for another MUST plan with a smaller deductible.

With the non-embedded version of the High Deductible Health Plan (HM), the individual deductible is irrelevant when the employee has elected coverage on two or more family members. In other words, the entire family deductible must be met before the plan will begin sharing costs. However, unlike other MUST plans, the family deductible can be met by one family member.

With the embedded version of the High Deductible Health Plan (HE), MUST begins to share costs on claims for a member with a family plan once the member meets the individual-deductible level embedded within the given family plan.

Federal guidelines state that all covered benefits (except for preventive care) must count toward the deductible, including prescription drugs. In most of the other MUST plans, there is a separate pharmacy benefit with its own deductible and out-of-pocket maximum. With HSA-qualifying plans, members can collect pharmacy receipts and submit them for reimbursement so that these costs accumulate toward the medical deductible. This can be beneficial for people with high prescription costs.

4. Does MUST control the Health Savings Account (HSA)?
No. MUST only administers the health plans that qualify a person to open an HSA.

If a district decides to offer one of these HSA-qualifying options to its employees, the employee decides whether – and where – to open a Health Savings Account. MUST has partnered with Wells Fargo Bank to simplify the process, but the employee could choose a different qualified financial institution. More information is available on the Wells Fargo HSA Web site.

5. Who funds the HSA, and what is the school district’s role in this?
The HSA is usually funded by the employee, but the school district could also choose to contribute to the account on a pre-tax basis. Employers who choose to make contributions are obligated by regulation to treat similarly situated employees (i.e., all employees enrolled in the High Deductible Health Plan) the same. Employees can fund their account on a pre-tax basis only if the school district has a Section 125 (“flex” or “cafeteria”) plan.

NOTE: School districts should amend their cafeteria plan to accommodate HSA contributions. They are encouraged to consult their tax advisor or human resources manager to ensure pre-tax HSA contributions are managed correctly.

An employee can also make after-tax deposits into the HSA and save Federal and Montana income tax as they complete their individual tax returns. This is accomplished with an “above-the-line” reduction to their adjusted gross income. The taxpayer is not required to itemize deductions, but must complete IRS Form 8889 for HSA contributions and distributions. This form can be found on the U.S. Treasury Web site.

6. How much money can be put into the HSA?
The best thing to do is always to check with the U.S. Treasury Department, which keeps the most recent numbers up to date on its website. Numbers listed here might be out of date, so it is in your best interest to check with the Treasury Department.

IRS regulations have generally stated that the annual HSA contribution could not exceed the deductible for the HSA-qualifying plan. And, if the person was not eligible for an HSA for the entire year, only a prorated amount could be put into the account.

Beginning in 2007: Congress passed legislation that eliminates some of these restrictions and increases the potential tax advantages of opening an HSA. The maximum HSA contribution amount is no longer limited by the HDHP deductible. For the 2011 tax year, an account holder can contribute up to $3,100 (for single coverage) or $6,250 (for family coverage), even if their deductible is less. He/she can also contribute this amount if only eligible for part of the year. (These amounts are adjusted annually for inflation.)

The new law also allows participants to do a one-time transfer from an IRA (individual retirement account) or FSA (flexible spending account) to fund their HSA initially. More information can be found on the U.S. Treasury's HSA Web site and other sources; interested persons should consult their tax advisor for specific guidance.

7. How do HSA account holders access their money?
Most financial institutions (including Wells Fargo) provide the HSA account holder with a special debit card. As with any debit card, funds cannot be spent unless they are present in the account.

The participant can use the debit card in the doctor’s office or pharmacy to pay any costs that would apply toward the deductible. Or the participant can choose to pay the bill by cash, check, or credit card, and then can either withdraw funds from the HSA to reimburse him/herself or leave the money in the HSA to grow for the future.

One important advantage is that the account holder can use the HSA funds to pay for qualifying medical expenses for anyone in their immediate family, even if those family members are not enrolled. Also, the list of qualifying medical expenses is not limited to services that are covered under the plan. According to IRS rules, HSA funds can be used to cover out-of-pocket medical, dental, or vision costs, including some over-the-counter drugs.