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Legislation signed in late 2003 included new tax provisions that allow for Health Savings Accounts (HSA). An HSA is a savings account that accompanies a high-deductible health insurance plan. It is very similar to an Individual Retirement Account (IRA). The difference is that the money deposited into an HSA is used to pay for health care expenses, while an IRA is used to provide retirement income.

As with an IRA, any contributions to an HSA are tax-free. Unlike an IRA, any withdrawals from an HSA for qualified medical expenses also are tax-free.

What is considered a high-deductible plan?
In order to qualify for an HSA, a health plan must have a deductible of at least $1,000 and an out-of-pocket maximum of not more than $5,000 for single coverage and a deductible of at least $2,000 and an out-of-pocket maximum of not more than $10,000 for family coverage. Plus, the plan cannot provide first-dollar coverage, such as co-pays.

What expenses can be paid with HSA funds?
Qualifying medical expenses include amounts paid for "medical care" as defined in Internal Revenue Code Section 213(d). That includes deductibles under a health plan, doctor office visits, medications (both over-the-counter and prescriptions) as well as expenses not covered under the health plan, like dental expenses (including orthodontia) and vision expenses (including laser eye surgery). The funds also can be used to pay for long-term care insurance premiums.

What happens if I don’t use all of the money contributed to an HSA?
Any remaining balance rolls over and accumulates to be available for medical expenses from year to year. If funds still remain at age 65, you can take penalty-free retirement income withdrawals.

If I’m an employer, do I have to contribute to my employees’ HSA?
Employers do not have to contribute to their employees’ HSAs. Employers can choose to contribute to their accounts if they like, or they can allow employees to contribute their own funds to the account. Or both the employer and employee can contribute. This is one of the ways in which an HSA is flexible.

Any employer contributions made to an employee’s HSA is made on a pre-tax basis.

How do I obtain an HSA?
Nationwide Health Plans sells qualified, high-deductible plans for individuals and small and large employers. For more information contact a local Nationwide agent, or call 800-940-3553.