Health Savings Accounts (HSAs)

What is a Health Savings Account?

  • An HSA is a personal savings account that allows you to pay for qualified medical expenses with tax-advantaged dollars. You (and/or your employer) contribute money to an HSA through pre-tax or post-tax contributions. The money contributed to the account is not subject to federal income tax at the time of deposit. Funds in an HSA roll over and accumulate year after year if not spent. All money in your HSA is owned by you.
  • Individuals may open an HSA if they are enrolled in an HSA-compatible health plan
  • HSAs can earn interest and be invested in financial instruments such as stocks, bonds, mutual funds, and CDs

What is a High Deductible Health Plan?

  • A higher annual deductible than typical health plans
  • A maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that you must pay for covered expenses. Out-of-pocket expenses include copayments and other amounts, but do not include premiums.

What is an HSA-Compatible Health Plan?

  • HSA-compatible health plans are High-Deductible Health Plans (HDHPs) that offer lower premiums/dues and higher deductibles than health plans which are not HSA-compatible and can be used with an HSA to obtain tax advantages

What are the Benefits of an HSA?

  • You can claim a tax deduction for contributions you, or someone other than your employer, make to your HSA even if you do not itemize your deductions on Form 1040
  • Contributions to your HSA made by your employer may be excluded from your gross income
  • The contributions remain in your account from year to year until you use them
  • The interest or other earnings on the assets in the account are tax free.
  • Distributions may be tax free if you pay qualified medical expenses.
  • An HSA is portable so it stays with you if you change employers or leave the work force

How is my HSA Funded?

  • If you receive health coverage through an employer, pre-tax funds can be deducted from your paychecks. You can also make lump sum contributions, and your employer may make contributions directly or through payroll deductions.
  • Limit on Contributions - The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, the date you become an eligible individual, your age and the date you cease to be an eligible individual. For 2008, if you have self-only HDHP coverage, you can contribute up to $2,900. If you have family HDHP coverage, you can contribute up to $5,800.


HSA Plans – Over-the-Counter Drugs

Examples of Eligible & Ineligible Medical Expense

Eligible Medical Expenses (For HSA Distributions)

  • Abdominal supports
  • Acupuncture
  • Air conditioner (when necessary for relief from difficulty in breathing)
  • Alcoholism treatment
  • Ambulance
  • Anesthetist
  • Arch supports
  • Artificial limbs
  • Autoette (when used for relief of sickness/disability)
  • Birth Control Pills (by prescription)
  • Blood Tests
  • Blood transfusions
  • Braces
  • Cardiographs
  • Chiropractor
  • Christian Science Practitioner
  • Contact Lenses
  • Contraceptive devices (by prescription)
  • Convalescent home (for medical treatment only)
  • Crutches
  • Dental Treatment
  • Dental X-rays
  • Dentures
  • Dermatologist
  • Diagnostic fees
  • Drug addiction therapy
  • Drugs (prescription)
  • Elastic hosiery (prescription)
  • Eyeglasses
  • Fees paid to health institute prescribed by a doctor
  • FICA and FUTA tax paid for medical care service
  • Fluoridation unit
  • Guide dog
  • Gum treatment
  • Gynecologist
  • Hearing aids and batteries
  • Hospital bills
  • Hydrotherapy
  • Insulin treatment
  • Lab tests
  • Lead paint removal
  • Legal fees
  • Lodging (away from home for outpatient care)
  • Metabolism tests
  • Neurologist
  • Nursing (including board and meals)
  • Obstetrician
  • Operating room costs
  • Ophthalmologist
  • Optician
  • Optometrist
  • Oral surgery
  • Organ transplant (including donor's expenses)
  • Orthopedic shoes
  • Orthopedist
  • Osteopath
  • Oxygen and oxygen equipment
  • Pediatrician
  • Physician
  • Physiotherapist
  • Podiatrist
  • Postnatal treatments
  • Practical nurse for medical services
  • Prenatal care
  • Prescription medicines
  • Psychiatrist
  • Psychoanalyst
  • Psychologist
  • Psychotherapy
  • Radium Therapy
  • Registered nurse
  • Special school costs for the handicapped
  • Spinal fluid test
  • Splints
  • Sterilization
  • Surgeon
  • Telephone or TV equipment to assist the hard-of-hearing
  • Therapy equipment
  • Transportation expenses (relative to health care)
  • Ultra-violet ray treatment
  • Vaccines
  • Vasectomy
  • Vitamins (if prescribed)
  • Wheelchair
  • X-rays


Consult Your Tax Adviser - This document provides general information only and is not intended to be a substitute for the advice of a qualified tax professional. You should consult a qualified tax professional who can evaluate your particular circumstances.

Eligible Over-the-Counter Drugs (For HSA Distributions)

  • Antacids
  • Allergy Medications
  • Pain Relievers
  • Cold medicine
  • Anti-diarrhea medicine
  • Cough drops and throat lozenges
  • Sinus medications and nasal sprays
  • Nicotine medications and nasal sprays
  • Pedialyte
  • First aid creams
  • Calamine lotion
  • Stop-smoking programs
  • Wart removal medication
  • Antibiotic ointments
  • Suppositories and creams for hemorrhoids
  • Sleep aids
  • Motion sickness pills


Ineligible Expenses for HSAs

Health Insurance may not be purchased with HSA Funds. There are four situations which are exceptions whereby HSA funds can be used to pay for:

  1. A health plan during any period of continuation coverage required under any federal law.
  2. A qualified long-term insurance contract
  3. A health plan during a period in which the individual is receiving unemployment compensation under federal or state law
  4. For individuals over age 65, premiums for Medicare Part A or B, a Medicare HMO and/or the employee share of premiums for the employer-sponsored health insurance, including premiums for employer-sponsored retiree health insurance.


Ineligible Medical Expenses

  • Advancement payment for services to be rendered next year
  • Athletic club membership
  • Automobile insurance premium allocable to medical coverage
  • Boarding school fees
  • Bottled water
  • Commuting expenses of a disabled person
  • Cosmetic surgery and procedures
  • Cosmetics, hygiene products and similar items
  • Funeral, cremation, or burial expenses
  • Health programs offered by resort hotels, health clubs, and gyms
  • Illegal operations and treatments
  • Illegally procured drugs
  • Maternity clothes
  • Non-prescription medication
  • Premiums for life insurance, income protection, disability, loss of limbs, sight or similar benefits
  • Scientology counseling
  • Social activities
  • Special foods and beverages
  • Specially designed car for the handicapped other than an autoette or special equipment
  • Swimming pool
  • Travel for general health improvement
  • Tuition and travel expenses a problem child to a particular school
  • Weight loss programs


Ineligible Over-the-Counter Drugs

  • Toiletries (including toothpaste)
  • Acne treatments
  • Lip balm (including chapstick or carmex)
  • Cosmetics (including face cream and moisturizer)
  • Suntan lotion
  • Medicated shampoos and soaps
  • Vitamins (daily)
  • Fiber supplements
  • Dietary supplements
  • Weight loss drugs for general well being
  • Herbs

Consult Your Tax Adviser - This document provides general information only and is not intended to be a substitute for the advice of a qualified tax professional. You should consult a qualified tax professional who can evaluate your particular circumstances.