Understanding a Health Savings Account (HSA)
What is an HSA-eligible health plan?
Duke Advantage is Duke’s new High Deductible Health Plan that can be paired with a Health Savings Account (HSA). An HSA- eligible high deductible health plan (HDHP) satisfies certain IRS requirements with respect to deductibles and out-of-pocket expenses. You must elect coverage in the Duke Advantage HDHP in order to be eligible to open and contribute to the Duke HSA.
What is an HSA?
An HSA is an individual account used in conjunction with an HSA-eligible health plan to cover out-of-pocket qualified medical expenses on a tax-advantaged basis. Your HSA belongs entirely to you, which means it is yours to keep even if you change employers. HSAs can be used to pay for both current and future qualified medical expenses for you and your eligible dependents. You can contribute to your account, withdraw money to pay for qualified medical expenses, and potentially grow your account on a tax-free basis by investing your savings in a wide array of investment options.
Am I eligible to open an HSA?
You must meet several IRS eligibility requirements in order to establish and contribute to an HSA. It is your responsibility to determine if you are eligible:
- You must be enrolled in an HSA-eligible health plan on the first day of the month. For example, if your coverage is effective on May 15, you are not eligible to contribute to or take a distribution from your HSA until June 1.
- You cannot be covered by any other health plan that is not an HSA-eligible health plan.
- You cannot currently be enrolled in Medicare. A 6-month look-back rule may apply for Medicare enrollment. Therefore, HSA contributions should end 6 months before enrollment in Medicare.
- You cannot be claimed as a dependent on another person’s tax return.
If you open an HSA and do not meet the above criteria, your contributions, any investment earnings, and distributions may be subject to income taxes, penalties, and/or excise taxes.
Additionally, in order to open and contribute to an HSA, you must have a valid U.S. address.
What type of expenses does an HSA cover?
Distributions from an HSA used to pay for qualified medical expenses for you, your spouse, and dependents are tax-free provided they meet the IRS definition of a qualified medical expense. The good news is that a lot of expenses qualify for payment or reimbursement, such as:
- Health plan deductibles and coinsurance,
- Most medical care and services,
- Dental and vision care,
- Prescription drugs, over-the-counter medications, and insulin,
- Medicare premiums (if age 65 or older).
Note that these expenses must not already be covered by insurance and non-Medicare health insurance premiums generally do not qualify. Additional information about HSAs and qualified medical expenses can be found in IRS Publications 969 and 502 at www.irs.gov.
If I don’t use my HSA for current medical expenses, can I save it for the future?
One of the main benefits of an HSA is that it is flexible depending on your needs. You can use your HSA to save and grow your money tax-free for the future, or you can use it to save money on taxes while paying for qualified medical expenses today. The combination of HSA tax advantages and the breadth of investment options available through an HSA provides an opportunity for potential growth.