What is a Health Savings Account (HSA)?

An HSA is a bank account, similar to a personal savings account.  You are permitted to contribute funds to the account on a pre-tax basis.  Funds in an HSA may be invested and capital gains are not taxable prior to distribution.  As long as the individual uses HSA funds to pay for qualified healthcare expenses, distributions from an HSA are not taxable.  For a list of qualified healthcare expenses, click here.

Based on IRS and Dept. of Labor regulations, following are the four basic rules that an individual must satisfy to be eligible for an HSA:

1. Covered by a qualified High Deductible Health Plan (HDHP);
2. Not covered by any non-HDHP plan (with a few exceptions);
3. Not be entitled to Medicare; and
4. Not eligible to be claimed as a dependent on another individual’s tax return

You are encouraged to contribute your own pre-tax dollars through payroll deduction.  The advantage of contributing your own funds is that you get a “Triple Tax Savings” – because all contributions to your HSA are 100% tax free, any HSA interest earnings are tax free, and money withdrawn for qualified expenses is tax free.

Currently, Mercer County offers health savings account contributions to employees who participate in specified Wellness Program Activities.

Annual contribution maximums are set by the Internal Revenue Service.  For 2019, contribution limits are $3,500 for individual coverage and $7,000 for family coverage.  If you are over 55, you can make additional “catch up contributions” up to $1,000 to help increase your HSA balance.

• You are responsible to open an HSA account at an area bank and submit the account information to the payroll clerk.
• You can withdraw money from your HSA much like a regular checking or savings account, such as using a debit card or checks. You are the owner of this bank account – UMR does not have access to your HSA account.
• If you are enrolled in the HDHP, there are limits on how you can use a Healthcare Flexible Spending Account (FSA).
• The IRS requires proof that you used your HSA money to pay for qualified medical expenses. Please make sure to save your receipts.
• For the reimbursement of a domestic partner’s expenses to be tax-free, he or she must qualify as a tax dependent under IRS Code Section 152.
• If your domestic partner does not qualify as a tax dependent, you will not be prevented from reimbursing the medical expenses; however, such reimbursement will be taxable to you and may be subject to an additional 20% tax.
• Do not pay any health care provider from your HSA until after UMR has processed the claim and applied any discounts.
• You may use your HSA debit card at the pharmacy.

• Unless approval is granted by the Board, employees may only change the financial institution designated for their HSA during open enrollment.
• You are not locked into your original contribution amount. However, the Board of Commissioners ask that you limit the number of times you change your HSA contribution to four times throughout the plan year.  No more than once per month.
• Pursuant to federal regulations, no employer contribution is required if employee fails to establish the HSA prior to the end of February.
• Employer contributions will be granted to employees who become eligible for an HSA in the middle of the plan year.  ALL of the following criteria must apply or be met:  a) employee was not HSA eligible on January 1 as a result of secondary coverage or flexible spending account coverage through their spouse, b) spouse has a non-calendar year plan, and c) employee notifies employer within 30 days of becoming eligible for an HSA.  Note:  IRS requires pro-rata contributions for employees who are HSA eligible for less than the full year.

• You decide how much money you would like to set aside for healthcare costs.
• HSAs are individually owned accounts.  Your employer may contribute to your HSA, but you own the account and the money is yours even if you terminate employment.
• Unused HSA funds carry over from year to year—all the way to retirement.  This allows you to save for future healthcare expenses.