Whether you are being, well… motivated to consider a Health Savings Account (HSA) due to a workplace change in policy, or you perceive that you are spending more than you should be for health care – some compelling reason brought you to this guide. Good! This is your first step toward understanding what an HSA is and how it works. This is an introductory guide that aims to inform consumers and employers about Health Savings Accounts.

1. The BEST
Introduction
to Health
Savings
Accounts
a guide by

2. Intro
Whether you are being, well… motivated to consider a Health Savings
Account (HSA) due to a workplace change in policy, or you perceive that you
are spending more than you should be for health care – some compelling
reason brought you to this guide. Good! This is your first step toward
understanding what an HSA is and how it works.
This is an introductory guide that aims to inform comsumers and employers
about Health Savings Accounts. Make sure you get additional questions
answered by reading IRS Pub. 969 or through your insurer.
Contents
HSA Origins
A Brief Look into CDHPs
Considerations of an HSA
Establishing an HSA
Using the Account
HSA Expenses & Coverage
Additional Resources
3
4
6
9
10
11
17
INTRO
HOW HSAS WORK
ADDITIONAL RESOURCES

3. 1
2
3
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5
6
7
8
0.1 0.20 .2 0.4
0.9
1.1
1.7
2.3
3.2
4.4
6.1
8.3
HSA Investment Assets (in billions)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*estimatedSource: Figures based on Devenir Research and 2014 Year-End Devenir HSA Market Survey
3 | HSA: Employee Benefit Express
Part 1 Intro
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According to the National Center for Policy Analysis (NCPA), the idea for such an
account came about in the early 1990’s. The NCPA had organized a task force whose
conclusions advocated for self-insurers to use a Medical Savings Account (MSA),
then “medisave”, to cover their smaller medical bills. It took a book (Patient Power,
1992) and much trial & error in the private sector before Congress came out with a
pilot program for the MSA in 1996.
Since MSAs were only available to the self-employed and employees of a small
business – there grew a need for plans available to the broader consumer market.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
is what expanded availability to any individual/family with HSA-qualified
insurance. HSAs are now a rapidly growing option in the healthcare community.
HSA Origins

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Part 1 Intro
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To fully understand an HSA, you must first learn about the general breakdown
of Consumer-Driven Health Plans (CDHPs) - as that is the general category of
what you’re looking at. The main idea of CDHPs is to give control of health care to
the consumer so that they are encouraged to make informed healthcare buying
decisions and can be rewarded with cost savings for living a healhtier lifestyle.
CDHPs are characterized by having a High-Deductible Health Plan (HDHP) associated
with some sort of medical savings account. In exchange for paying for routine
medical expenses up front, the consumer gains the benefit of a lower insurance
premium. You pay these medical expenses (excluding the premium) out of your
medical savings account.
A brief look into CDHPs

5. Deductible Period
Financial Layout of Payment Periods
Coinsurance Period
After OOP max is reached
Insurance Premium
Non-qualified Expenses
Coverage
Preventive Care
HSA-qualified expenses
You Pay They Pay
*Not based on actual percentages
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Part 1 Intro
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In terms of initial money allocation in an HDHP: there are certain things that are
considered preventive care... which are covered by the plan straight away. In addition
to a premium, other expenses must be paid in full until the deductible is met - at
which point the plan will cover a percentage of the remaining costs. Once the out-of-
pocket maximum is reached, then the plan will pay the rest of your medical expenses
for the term. These conditions will be discussed later in the guide as well.
There are a few varieties of HDHPs that you can consider. The main options
include: Flexible Spending Accounts (FSAs), Health Savings Accounts (HSAs), Health
Reimbursement Arrangements (HRAs), and Medical Savings Accounts (MSAs). All will
allow tax advantages; however, each has unique stipulations.
A brief look into CDHPs

6. A brief look into CDHPs
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Part 1 Intro
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FSA - Flexible Spending Account
Employer-established accounts that reimburse employees for qualifying expenses.
They are usually funded through salary reduction agreements under which
employees receive lower monetary wages in exchange for equivalent contributions
to their FSAs.
HRA - Health Reimbursement Arrangement (Account)
Employer-established arrangements that reimburse employees for qualifying
expenses. Contributions cannot be made through the employees’ salary reduction
agreements; only employers may contribute.
MSA - Medical Savings Account
Accounts that the account holders use to pay for qualifying expenses. They were
established by individuals who held high-deductible health plans (HDHPs) in order
to establish or contribute to the MSA. Individuals generally cannot open MSAs
after December 31, 2007, but those who had accounts by this date may maintain
them. MSA eligibility was limited to people who were self-employed or employed
by an employer with fewer than 50 employees. Contributions may be made by the
employer or account holder, but not both in the same year.
Summary of Other Accounts

7. Triple Tax Advantages
Savings that grow
are tax deferred
Deposits are
deductible off
federal gross income
Qualified medical
distributions are
never taxed
$ $
Investment Advantages
Funds may be
invested in a CD,
money market, or
mutual fund
Employer
contributions are
yours to keep
Funds rollover to
the next term
$$
$$ $
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Part 1 Intro
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Compared to traditional plans, CDHPs are more complex and require much more
planning for the future to make them successful. If you’re willing to make time to
shop around for services, and when researched thoroughly and applied properly, an
HSA under an HDHP can yield some hefty savings through these advantages:
Considerations of an HSA
Positive Considerations

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Part 1 Intro
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Lowers health care premiums under the HDHP for coverage for employees
Lowers the employer’s administrative costs
Provides employees an opportunity to contribute for future health care expenses under
the HSA for him or herself and his or her dependents
Provides any employee who contributes to an HSA with a tax deduction and/or an income
tax and payroll tax free contribution
No monies in employees’ HSAs can ever be forfeited back to the employer, even if
contributions are deemed in excess
Provides an employer with an opportunity to contribute to eligible employees at any
time and at any amount up to statutory limits
Gives employees immediate access to their HSAs for any reason
Provides tax free distributions at any time for health care expenses incurred after the
HSA has be established (if the expense was neither reimbursed from any other source
nor deducted by the employee)
Provides reimbursement of health care expenses for his or her spouse after the
employee’s death, provided the spouse is named as the beneficiary under the HSA
Provides either a trust or custodial account that accumulates earnings on a tax free basis
Gets the employer out of the business of substantiating health care claims
Avoids the requirements of ERISA (and COBRA and HIPAA) if the employer does not make
participation in the HSA mandatory
Gives the employees who participate in an HSA complete portability in transferring their
accounts at any time
List curated by Larry Grudzien, Attorney at Law
Considerations of an HSA
A more robust list of potential advantages:

9. $ Set-up Fee
$ Transaction Fees
$ Maintenance Fees
$ Account Closing Fee
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Part 1 Intro
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Considerations of an HSA
Negative Considerations
Fees
Like most bank accounts, HSAs also have associated fees – including:
These fees may vary, so consider these costs when you’re shopping for an account.
Administration
The ball is now in your court. You no longer have a Primary Care Physician to act as
the middle man. You’ll have to do the shopping and make the decisions based on
the information you find. This also makes you responsible for all the IRS reporting
and having back-ups and justifications for your records.
Information
It can be difficult to gain access to accurate medical pricing and quality of service.
When time isn’t on your side, in the case of an emergency, you may not be considering
the best financial option to get care.
Slow-start
If your financial situation doesn’t allow for you to accumulate funds and have them
rollover, then you may not witness the long-term HSA benefits right away.

10. 10 | HSA: Employee Benefit Express
Part 3 Additional Resources
You have coverage other than the HDHP/HSA (exceptions
listed in Outside Coverage on p16)
You are enrolled in Medicare
You can be claimed as a dependant on somebody else’s
tax return
You are not required to gain permission from anyone
before applying for an HSA
Your account will be safe - the institution, known as the
account trustee, is required to:
!
!
!
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Part 2 How HSAs Work
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Establishing an HSA
There is a particular order in which you should set up your account. It is required
to be enrolled in an HDHP before applying for a Health Savings Account; however ,
some institutions will let you start applying before your HDHP takes effect - allowing
you to have funds available when your plan starts. Once you have a High-Deductible
Health Plan, you may start searching your area for a bank or credit union that offers
health savings accounts. Keep in mind that you will not qualify if:
How to actually set up the account will vary, but most banks offer both electronic
and paper forms to get started. Please note:

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Part 3 Additional Resources
After a service, the doctor will submit a claim to the insurer
Once the insurer has the claim, they will apply any eligible
discounts
The amount paid will count towards the annual deductible
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Part 2 How HSAs Work
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If the HSA has insufficient funds, then the amount will need to be paid out-of-pocket;
however, the out-of-pocket expense can be reimbursed once the HSA has sufficient
funds. This does not apply if the deductible has already been met.
Important note - Save receipts as proof for the IRS or the insurer.
In terms of using your funds, a qualified medical purchase, such as a prescription
medicine, you would just have to make sure that is covered in your specific plan
before the purchase. As for when you require a service, there is a general procedure
similar to having a traditional plan:
Using the Account

12. 12 | HSA: Employee Benefit Express
Part 3 Additional Resources
2016 Coverage Levels
$3,350 Individual
$6,750
2015
$3,350
$6,650
2014
$3,300
$6,550 Family
$1,000$1,000$1,000 Catch-up
Annual HSA Contribution Amounts
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Part 2 How HSAs Work
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HSA Expenses & Coverage
The funds you and your employer place into the account are known as contributions.
This is the sum of money that will supplement all your deductibles, coinsurance
payments, and other qualified expenses. While the deductibles are higher,
remember that insurance premiums are also lower (and there’s money saved
with the tax advantages) - meaning that you could use these savings to buffer the
costs of the higher deductibles. There is a limit on the combined amount any source
can fund into the account:
Catch-up Contributions
To even the benefits of having an HSA at a younger age through retirement, the IRS
also allows individuals 55+ the ability to make catch-up contributions to the account.
Contributions

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Part 3 Additional Resources
2016 Coverage Levels
$6,550 Individual
$13,100
2015
$6,450
$12,900
2014
$6,350
$12,700 Family
Annual Maximum Out-Of-Pocket Limits for HDHP
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Part 2 How HSAs Work
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HSA Expenses & Coverage
A primary benefit of having a High-Deductible Health Plan (HDHP) is that there is
an overall limit on how much you will pay out-of-pocket (OOP). This means,
once you have satisfied your out-of-pocket maximum, the insurance will cover the
remainder of your health expenses for the policy period. In terms of what will count
towards this OOP maximum - the annual deductible, copays, and coinsurance will
all go toward this maximum. View the most recent annual limits below:
Note: It can be a balancing act in choosing higher Out-of-Pocket maximums for a
lower monthly premium – having such a set-up could help with accumulating HSA
funds.
Out-of-Pocket Expenses

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Part 3 Additional Resources
2016 Coverage Levels
$1,300 Individual
$2,600
2015
$1,300
$2,600
2014
$1,250
$2,500 Family
Annual Minimum Deductible Amount Limits for HDHP
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Part 2 How HSAs Work
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As notable from the type of plan (High-Deductible), the deductible is the first amount
to work through before you start to receive more assistance with healthcare costs.
Thismeansyouwillbearthebruntoftheinitialcostsonyourown.Oncethespecified
deductible is satisfied - insurance will contribute a percentage of the total
costs and charge you a coinsurance percentage. Then, as noted before, once the
OOP maximum is met, insurance will cover the rest. Since it is a fixed amount, then
the deductible has a set minimum. View the most recent HSA-qualified deductible
minimums below:
Deductibles
HSA Expenses & Coverage

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Part 3 Additional Resources
Ambulance
Annual Physical Exam
Body Scan
Chiropractor
Dental Treatment
Eye Exam
Hearing Aids
Labratory Fees
Nursing Home
Oxygen
Psychologist
Surgery
Transplants
Wheel Chair
X-ray
Prescriptions
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Part 2 How HSAs Work
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You’re probably wondering how well an HDHP will cover your expenses. Since HSAs
are subject to the same insurance laws and regulations as other policies, like HMOs
and PPOs, then their coverage is comparable to the more traditional plans.
Some covered Medical Expenses may include:
See IRS publication 502 for a full list of included/non-included medical expenses:
http://www.irs.gov/publications/p502
Preventive Services
It’s uncertain what your policy will entail when it comes to preventive services. Plans
can potentially be limited or unlimited and/or cover 100% or charge co-pays.
It’s more or less a case by case basis and you need to research a plan that fits your
needs.
Coverage
HSA Expenses & Coverage

16. 16 | HSA: Employee Benefit Express
Part 3 Additional Resources
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Part 2 How HSAs Work
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Unless your spouse or dependent also has an HDHP, then basically any other type
of coverage will disqualify you (listed below):
• Dependent on someone else’s tax return
• Enrolled in Medicare/Medicaid
• Enrolled in HMO/PPO (including coverage under a spouse)
• VA Benefits
• Coverage through Health Reimbursement Arrangement (HRA) or Flexible
Spending Account (FSA)
However, there are a few variants of HRAs and FSAs that are compatible with an
HSA:
• Auto
• Dental only
• Vision only
• Insurance for a specific disease or illness, as long as it pays a specific
dollar amount when the policy is triggered
• Hospital Indemnity
• Long Term Care
• Disability
• Wellness programs offered by your employer, if they do not pay for
significant medical benefits
• Worksite employee assistance programs (EAP), if they do not pay for
significant medical benefits
Outside Coverage
HSA Expenses & Coverage

17. 17 | HSA: Employee Benefit Express
Part 3 Additional Resources
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The purpose behind this guide was to be informative - not endorse having an HSA.
To learn more about HSAs, please consider the following resources:
IRS Publication 969 - overall guide to HSAs
http://www.irs.gov/publications/p969/ar02.html
HSA Center - general HSA information and FAQs
http://www.hsacenter.com/index.html
Healthgrades Inc. - provider of hospital / doctor / service rates
http://www.healthgrades.com/
Congressional Research Service - comparison of tax-advantaged accounts
https://www.fas.org/sgp/crs/misc/RS21573.pdf
Patient Advocate Foundation HSA Resource - additional HSA information
http://www.patientadvocate.org/requests/publications/Guide-To-Health-Savings-Account.pdf
IRS Publication 502 - list of covered & noncovered expenses
http://www.irs.gov/publications/p502/ar02.html

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