How Money Flows into Health Savings Accounts

By Robert J. Grossman Jun 1, 2009
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June CoverIn 2003, the federal government created health savings accounts (HSAs). Employers that offer consumer-directed health plans (CDHPs) that are high-deductible plans—deductibles of at least $1,150 but no more than $5,800 for individual coverage, and $2,300 to $11,600 for families—are authorized to set up an HSA for each covered employee.

An employer’s decision to offer HSAs is optional. The law requires the employer to offer a plan where the covered individual or family must pay health care expenses, including prescription drugs, out of pocket until their chosen deductible is met. The employer may waive this requirement for authorized preventive care such as annual physicals, mammograms, and tobacco-cessation and weight-loss programs. The CDHP covers all of the individual or family costs beyond the deductible. Humana also pays associates 100 percent of the preventive care permitted under the law.

Contributions to HSAs are sheltered from taxable income; withdrawals for qualified medical expenses are not taxed. Employees own their HSAs, can carry them over from year to year and can take them when they leave the employer or retire.

Deposits to HSAs can be made by employees, employers or third parties. Qualified expenses can include over-the-counter as well as prescription drugs, Medicare and other insurance premiums, and co-pays in retirement. A person with individual coverage can shelter no more than $3,000 each year; the family coverage cap is $5,950.

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