Think of an HSA like a bank account with numerous special advantages. The deposits you make are tax deductible. As long as you use the money to pay for HSA qualified health care expenses, withdrawals are not taxed.

To contribute to an HSA, you must be enrolled in a qualified high-deductible health plan. The minimum deductible on an HSA-qualified plan is now $1,200 for individuals and $2,400 for families.

Another thing that confuses many people is the difference between a Health Savings Account and a Flexible Spending Account. The main difference is that you must use the money in your FSA before the year ends or it will be forfeited. With an HSA, unspent funds are carried over every year.

To get the most from your Health Savings Account Plan, you need to manage your health care dollars efficiently. You should consider only using your HSA funds for small medical expenses (such as small co-pays) and leave a lot of the money in your HSA to grow in case you need to cover major health care expenses in the future. This also helps maximize tax savings. Margaret Jarvis, spokeswoman for Blue Cross and Blue Shield of Texas, added that if you do use your HSA funds now, make sure that you use it only for qualified medical expenses to avoid penalties.

Another way to get the most out your HSA is to contribute the maximum allowed every year so you can get the maximum tax savings. Contribution limits are set by the IRS and change each year because they're adjusted for inflation. For 2012, individuals can contribute up to $3,100 and families can deposit up to $6,250. Those who are at least 55 can make an additional $1,000 contribution. Your employer may deposit into your HSA. Contributions from both you and your employer count toward the annual contribution limit. Additional information is available here on our website.

That test begins in 2014. Plans must have an actuarial value of at least 60 percent. While regulators have yet to define a formula to determine that actuarial value, in general, the value would be the percentage of expected costs for benefits covered by the plan.

If a plan were to fail that test, employees with incomes of less than 400 percent of the federal poverty level would be eligible for premium subsidies. They could buy coverage in the state health insurance exchange. If an eligible employee used the subsidy at an exchange, the employer would be liable for a $3,000 penalty.

The Health and Human Service (HHS) issued guidance would apply only to individual health plans and those associated with employers that have 50 or fewer workers.

While benefit experts say most employer plans would easily pass the 60 percent actuarial test, really high-deductible insurance plans might fail the test. Under federal law, the maximum out-of-pocket employee expense this year is $6,050 for individual coverage and $12,100 for family coverage.

To partially offset those cost-sharing requirements, 75 percent of employers offering Health Savings Account Plans make contributions to employee accounts. The median contribution for employee-only coverage is $500, according to a Mercer L.L.C. survey.

HHS is considering excluding a portion of employers' HSA contributions in calculating a plan's actuarial value because only a portion of these accounts are used towards health in a given year.

Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago disagrees. He believes all employer contributions to an HRA or HSA should count in the year of the contribution because they can all be spent that year. If this does not happen, he says, high-deductible plans will be placed at “a competitive disadvantage in the marketplace.”

According to the latest Health Savings Account Program Snapshot Report by J.P. Morgan Treasury Services, the average Chase HSA balance ($1,547) is four percent higher than it was in 2010. This is the highest balance that's been recorded in the past seven years.

Elena Szymanski, Executive Director of J.P. Morgan Treasury Services, says “For the third consecutive year, we have seen a significant increase in the adoption of Health Savings Accounts and, more importantly, they continue to be used as an effective consumer tool for managing healthcare expenses.” This indicates that Health Savings Accounts are a great option for both individuals and employers to save on health care and taxes.

Another report by the Bank of America showed that Health Savings Accounts grew by 34 percent in 2011 with 50,000 new accounts added that same year. Compared to Flexible Spending Accounts and Health Reimbursement Arrangements, Health Savings Accounts are growing fastest.

According to Kevin Crain, head of Institutional Retirement and Benefit Services for Bank of America Merrill Lynch, individuals and employers use Health Savings Accounts to manage the increasing cost of health care. An HSA also encourages people to make better health care and lifestyle choices.

Health Savings Accounts were first introduced in the health insurance industry in 2003 under President’s Bush administration in an effort to decrease consumers’ cost in health care while giving consumers more control on their healthcare choices. With an HSA, you get tax-deductions for deposits made in the account and tax-free withdrawals for funds used for paying qualified medial expenses.

In order to use an HSA, you must have a qualified high-deductible health plan that offers lower premiums than co-pay plans. Once you have that in place, you can immediately fund your account and let the balance grow with tax-free earnings. You can invest in an interest-bearing savings account, bonds, mutual funds or stocks.

This year, the annual contribution limits set by the IRS are $3,100 for individuals and $6,250 for families. This is slightly higher than the HSA maximum contribution limits last year. For more information about Health Savings Account, you can check our HSA Information page.

The report provides a view of how Health Savings Accounts have been used by J.P. Morgan Chase HSA holders. Having a Health Savings Account (HSA) has been shown to help increase savings and pay for health care expenses.

The average HSA contribution rose by 1.5 percent from $1,884 in 2010 to $1,912 in 2011. When it comes to savings on annual taxes (assuming a 28-percent federal income tax rate), HSA owners average savings of $500. Average account balances are increasing by $500 per account per year. Seventy-four percent of HSA holders contributed more to their account than they spent in 2011.

Elena Szymanski, Executive Director of J.P. Morgan's Treasury Services, said, "For the third consecutive year, we have seen a significant increase in the adoption of Health Savings Accounts and, more importantly, they continue to be used as an effective consumer tool for managing healthcare expenses.”

If you want to get tax deductions and spend tax-free dollars on qualified medical expenses, an HSA remains a valuable option. The full version of J.P. Morgan's HSA Program Snapshot is available at: http://www.jpmorgan.com/visit/hsasnapshot.

As of February 2012, J.P. Morgan administers more than 900,000 Health Savings Accounts with over $1.5 billion in deposits. J.P. Morgan administers HSA programs in conjunction with many of the largest health insurance companies in the United States as well as Fortune 500 companies for small businesses and individuals across the nation.

Bank of America offers Health Savings Accounts, Health Reimbursement Arrangements and Flexible Spending Accounts. Nationwide, more than 600,000 individuals and more than 2,000 companies took advantage of these accounts via the BoA. Among these three types of plans, Health Savings Accounts are the fastest growing, with almost 200,000 accounts and more than $300 million in collective account balances.

If an employee has an HSA, he or she is allowed to make pre-tax contributions to pay for qualified health care, such as doctor visits and prescriptions. Contributions made by the employee are tax deductible.

You need a high-deductible health plan to start an HSA. The account is owned by the employee or individual, earns tax-free interest, the HSA balance rolls over every year, and it moves with the employee whether he or she quits or change jobs.

Crain added that aside from the tax benefits, HSA plans give individuals more control over health care costs. They have the option to let the balance grow so they can use it for retirement. Health Savings Accounts motivate people to be more proactive when it comes to their health and lifestyle decisions.

This year, the IRS increased the annual HSA contribution limit for individuals and families. Individuals are allowed to contribute up to $3,100 (an increase of $50 from last year) and families can contribute up to $6,250 (an increase of $100 from last year).

Last year, the average HSA contribution to BoA was $2,016 with employers contributing more than 20 percent of this total average to their employees’ accounts. Since the start of 2010, the average HSA account balance has grown more than 10 percent, or more than $1,600 per person. This shows that HSA policyholders are saving using these accounts and letting it grow for future health care expenses.

Justin Raniszeski, Health Benefit Solutions executive for BoA Merrill Lynch said, “Future health care costs and funding retirement consistently rank among individuals’ top financial concerns, with health and wealth becoming two sides of the same coin.” He added that using multiple tax-advantaged savings accounts can help build savings that can help during times of great need.

While waiting for the future of the health care reform law, why not take a closer look at Health Savings Accounts? If you’re having a hard time handling your medical costs, this may be a tax-smart option for you. Recent tax laws have greatly improved how Health Savings Accounts work. That is why we see a growth in HSA users every year.

Just like an IRA, HSA earnings are free from taxation. In addition, distributions are tax-free as long as you use the funds for qualified health care. However, if HSA funds are used for other purposes before you reach age 65, you will need to pay a 20-percent tax penalty.

HSA plans are available to any one who has not yet reached Medicare eligibility age. You must have a qualifying high-deductible health insurance plan to start an HSA. As of 2012, that plan needs to have a deductible of at least $1,200 and an out-of-pocket maximum of $6,050 for individual coverage, and a deductible of at least $2,400 and an out-of-pocket maximum of $12,100 for family coverage.

There is also a maximum amount that you can deposit in your HSA every year. For 2012, individual coverage has a maximum contribution of $3,100, and $6,250 for family coverage. An additional $1,000 can be made by individuals 55 or above, which we call “catch-up contributions.”

Unused HSA funds roll over to the next year, unlike with Flexible Spending Accounts, at the end of the year. You can place money in your HSA and just let it grow to pay for future medical expenses.

The future of health care in the United States is still uncertain. However, there are popular plans that will help secure your future. Have you heard of Health Savings Account (HSA) plans?

Health Savings Accounts Help With Health Care Expenses And Taxes!

HSA plans are similar to Individual Retirement Accounts (IRA). The remaining balance at the end of the year in your HSA account rolls over to the next year and just grows with tax-free interest. HSA contributions, which can be made by you or your employer, are considered above-the-line deductions on Form 1040.

If you pull funds from your Health Savings Account for other purposes aside from eligible healthcare expenses, you will pay a 20 percent penalty. However, once you qualify for Medicare (age 65 and above), you are free to use the HSA funds for other purposes without a penalty fee. You might need to pay taxes on withdrawals, though.

To enroll in an HSA, you need to have a qualified high-deductible health plan in place and not yet be eligible for Medicare. As of 2012, the deductible to qualify for an HSA remains unchanged. It must still be at least $1,200 for individuals and $2,400 for family coverage. Your individual high-deductible HSA plan must also have an out-of-pocket maximum of $6,050 and $12,100 for family plans.

This year, the maximum contributions that can be deposited in your HSA were increased by the IRS. The HSA contribution threshold is $3,100 for individuals and $6,250 for family plans. However, “catch-up” contributions remain unchanged. It is still $1,000 for individuals age 55 and older.

Compared to flexible spending accounts (FSA), with an HSA you don’t have to use your savings by the end of the year. All unused FSA funds are forfeited when the year ends. Health Savings Accounts allow you to use any amount left in your account to pay for qualified health care expenses in the future.

Changes To Health Savings Accounts Due To The Health Care Reform Law

Due to the Affordable Care Act, over-the-counter (OTC) drugs without prescriptions are no longer considered an HSA-qualified medical expense. You need to present a prescription from your doctor if you plan to use your HSA money for OTC medications. Also, the penalty for HSA withdrawals for non-medical purposes was increased from 10 percent to 20 percent.

HSA Tax Strategy

Since contributions are exempted from your annual income taxes, it would be best to fully fund your Health Savings Account before April 15, 2012. Simply let your funds roll every year and grow with tax-free earnings. It would also be wise to use your HSA dollars only when necessary. Then, you'll have savings toward your retirement.

For the 2011 tax year, you have until April 16, 2012 to make your HSA deductible contribution (April 15 falls on a Sunday). You can make your contribution even if you are no longer eligible so long as you are making the contribution for when you were eligible (assuming you do so before April 15 or your applicable tax filing due date).

For employer contributions, they are reported on Form W-2 in box 12 using code "W" and should be reported on Part I of Form 8889. To the extent that you made personal contributions to the HSA plan that are deductible, the amount carries to Form 1040, line 25.

Distributions will be reported to you on Form 5498-SA and you will be required to complete Part II of Form 8889, if applicable. To the extent the distributions are used to pay for qualified medical expenses, the distribution will not be additional income. If the contributions to the HSA plan exceed the prescribed limits for 2011, the additional tax will be computed on Part III.

Unlike Health Savings Accounts, which must be reported on Form 8889, there are no reporting requirements for health FSAs on your personal income tax return. Your employer will exclude your contributions to the health FSA plan from your wages on Form W-2.

Your HSA distributions may be used to pay for qualified health care for your family, in addition to your own health care, even if family members are not covered under your HSA health insurance plan. HSA distributions that are not spent to cover qualified medical expenses or are not rolled over must be included in your income, and could cause you to incur a penalty. Once you have the correct forms and instructions, taking a tax deduction for HSA-funded health care can be the best part of filing taxes.

How Does an HRA Work?

Health Reimbursement Arrangements may seem pretty complicated, but in reality, they’re really simple. A HRA is really just a system that allows employers to reimburse employees for medical expenses tax-free. There are some basic points on how HRAs work.
The employer selects the monthly allowances for the employees. These allowances can be different based on the job function or health need of each employee. This allowance isn't actually paid to the employees yet until they make reimbursements.
Employees pay for their own medical care. This can be a doctor visit, individual insurance, prescription medicine, or a number of other qualified expenses. The employer then reimburses the employees up to the amount of their allowances. Allowances build up from month to month assuming the employee isn't spending the full amount.

What Makes Health Reimbursement Arrangements Different?

Unlike Health Savings Accounts (HSA), there is no limit to the amount of money an employer can contribute to an employee’s HRA.

An HRA may reimburse any expense considered to be a qualified health care expense by the IRS, including expenses for health insurance policies. Within IRS guidelines, employers may restrict the list of reimbursable expenses in any way they choose.

HRA balances may roll forward from year to year. Employers can design the HRA not to allow balances to rollover from one year to the next. However, limiting the roll over feature defeats a key Health HRA advantage. Employers may allow employees to have access to their Health Reimbursement Arrangements after retirement. However, employers may not pay/distribute cash or other benefit balance to any employee.

Reporting features make real-time monitoring of HRA liabilities, reimbursements and utilization easy. Employers can change plan benefits at any time or cancel the entire plan at any time. In addition, HRAs allow employers to establish plan-year maximum reimbursements for any given category of expense and to establish a maximum balance that any participant class may hold at a time.

The data was collected in January 2012 and it came from the top 50 HSA providers. According to Eric Remjeske, President and Co-Founder of Devenir, “We continue to see strong growth in the HSA marketplace as well as steady increases in average balances.”

The survey also found that the average HSA account balance at the end of 2011 had grown to $1,841 from $1,751. That is a 5.1-percent increase from 2010. If you eliminate the identified zero balance accounts, the average increases to $2,179.

Since Health Savings Accounts were first made available 2004, the average balance has grown by 31 percent per year. As for contributions, almost 24 percent was carried over from the past year into 2012.

With respect to investments, HSA dollars have continued to rise. In December 2011, HSA assets had reached approximately $960 million. By 2015, it is projected that investments will reach $4.7 billion.

According to Jon Robb, Lead Research Associate with Devenir, with the current trend, Health Savings Accounts are serving their purpose and helping people save for future medical expenses.

Thayn created a bill that will allow the Idaho Department of Administration to offer Health Savings Accounts to state workers. He recently presented the bill in the House Commerce and Human Resources Committee although he admits that it still needs a lot of work. Panel members wanted the bill to be clearer.

Health Savings Accounts are tax savings accounts that can be used to pay for qualified health care. Both employer and employee are allowed to fund an HSA. They must be paired with a qualified high-deductible health insurance policy.

The idea has worked in Indiana. Gov. Mitch Daniels allowed HSA plans to be offered to state workers in 2005. The Hoosier State was able to save $20 million in 2010 with Health Savings Account plans. Indiana gives each worker $2,700 in medical savings cash to cover expenses and then covers a health insurance policy with an $8,000 deductible.

According to statistics, approximately 70 percent of new employees are picking Health Savings Accounts over traditional health insurance plans.

Despite the popularity that HSA plans receive, critics believe that these plans force state workers to delay treatment just to save money. However, supporters argue that people will make smarter health service choices by comparing prices.

When Health Savings Account Plans were introduced in 2004, employers also started using this option for employees. HSA plans are tax-advantaged accounts where you can use the funds to pay for qualified medical care. According to Paul Fronstin of the Employee Benefit research Institute, HSA plans can even be used as retirement accounts.

Even though Health Reimbursement Arrangements and HSA plans are still relatively new, the number of enrollees continues to increase. In 2006 alone, nine percent of the poeple with an HRA or HSA had had these accounts for three to four years. By 2011, almost 27 percent had held an HSA for three to four years. As the length of time that individuals have these plans increases, average account balances should grow, as well.

With the great benefits of these accounts, it’s no wonder that people enroll in Health Savings Accounts and Health Reimbursement Arrangements.

The maximum 2011 Health Savings Account (HSA) contribution is $3,050 for individuals and $6,150 for families. An additional $1,000 catch-up contribution can be made for individuals who are 55 or older. In 2012, tax-deductible HSA contributions have been raised by the IRS to $3,100 for individuals and $6,250 for families.

The contributions deposited in your Health Savings Account grow tax-free and can be withdrawn tax-deferred as long as the funds are used to pay for qualified health care, such as dental and vision care.

According to Richard A. Collins, CEO of UnitedHealthcare’s Golden Rule Insurance Company, “Health Savings Accounts make sound financial sense because they enable consumers to save tax-free for their current and future medical needs.”

In the most recent survey conducted by Fidelity Investments®, approximately seven out of 10, or 68 percent of pre-retirees, stated that medical care costs during retirement years are one of the three biggest financial concerns they have.

Collins said that unused HSA funds rolls over year after year earning interest. This can help build a“medical nest egg” that can be very valuable during retirement when health care needs can increase significantly.

As of 2012, the deductible that the IRS had set to be able to establish an HSA is between $1,200 and $5,950 for individual plans or between $2,400 and $11,900 for family plans.

When it comes to premiums, high deductible health insurance plans usually have lower premiums compared to other traditional health insurance plans because they cover fewer items. With an HSA, you can pay for healthcare expenses that are not usually covered by your plan such as dental and vision care.

If you withdraw funds from your HSA to pay for qualified medical expenses, the distribution is tax-free. However, if you use it for other purposes aside from medical expenses and you haven’t reached 65, you will be subjected to an additional 20 percent tax penalty.

What Are HSA Benefits?

OTC Drugs. Last year, over-the-counter drugs except for insulin are no longer covered unless you present a prescription from your physician.

Tax deductions. Contributions made by you or your employer can be deducted from your annual tax income even if you don’t itemize. The contributions placed by your employer in your savings account can be excluded from your gross income. The balance rolls over every year so you don’t need to you worry about your funds being forfeited at the end of the year.

Tax Free. Interest and other earnings in your HSA account grow tax-free. Distributions are also tax-deferred if used for qualified medical expenses.

Portable. With an HSA, the money is yours to keep even if you change jobs or you leave the work force.

The penalty for spending Health Savings Account (HSA) funds on something other than qualified health care before you turn 65 was doubled. In addition, over-the-counter medicines were removed from the list of qualified expenses unless a doctor prescribes them. Besides the regular annual change in contribution limits, everything else remains the same.

The IRS has announced that the 2012 Health Savings Account annual contribution limit will be $50 higher at $3,100. The family coverage will be $6,250, which is an increase of $100. Catch-up contributions for those who are 55 or older won’t change, though. Those people can still deposit and additional $1,000.