A health savings plan or account (HSA) is an account owned by an individual who is usually a current or former employee of an organization, and any contributions made by the employer are the property of the employee and cannot be withdrawn by the employer, according to the Internal Revenue Service (IRS). The account owner uses the HSA to pay for medical expenses that are not reimbursable by the insurance company. Various rules have been set up by the government that applies to health savings plans or accounts.
Eligibility
To enroll in a health savings plan, a qualified person must be covered by a high deductible health plan (HDHP) and not covered by other health insurance, according to the IRS. There are no income limits or income requirements to enroll in a HSA.
Contributions
Contributions to a health savings plan can be made by the employee, employer or both, according to the United States Treasury Department. Money contributed to a HSA is not taxable if made by the employer and if the contributions are made by the employee, it is an above-the-line deduction (deduction subtracted from gross income). The IRS sets limits on the amounts that can be contributed annually for both self-coverage and family coverage. People who are enrolled in Medicare cannot contribute to health savings plans.
Pre-Tax
If contributions are made through an employer, the contributions are made with pre-tax dollars and excluded from the employee's income.
Self-Employed
People who are S-Corporation shareholders, partners of a company, or who are self-employed are not considered employees and cannot receive employer contributions to a health savings plan, according to the United States Treasury Department. However, they can make deductible contributions on their own.
Medical Expenses
A qualified medical expense that is reimbursable from a HSA must be incurred on or after the HSA was established. No previous medical expenses are reimbursable.
Non-Highly Compensated Individuals
According to the IRS, the Tax Relief and Health Care Act of 2006 allows employers to make higher HSA contributions for lower paid employees than higher paid employees.
Non-Qualified Medical Expenses
The amount of a distribution from the HSA is included in income if it was used for a non-qualified medical expense and an additional 10 percent is applied except in the case where an individual becomes disables or dies, or if the individual is over the age of 65, according to the United States Treasury Department.
Ownership
Health savings plans are owned by the employee who can decide which medical expenses to pay from the account, whether they save the money for future use, which company holds the account, and what type of investments are used to grow the account. The employer cannot restrict rollovers to the account or control what distributions are used for from the HSA.
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