Health Savings Account – How an HSA Works

You and your employer can deposit money into your HSA account, up to an annual per-person or family limit set by the IRS. When you enroll, an account will be created for you at a sponsor bank. You’ll be given access to a secure, easy-to-use web portal where you can track your account balance, view your investment accounts and submit requests for reimbursements.

HIGH DEDUCTIBLE HEALTH PLANS AND EXPENSES RELATED TO COVID-19

To facilitate the nation’s response to the 2019 Novel Coronavirus (COVID-19), this notice provides that, until further guidance is issued, a health plan that otherwise satisfies the requirements to be a high deductible health plan (HDHP) under

section 223(c)(2)(A) of the Internal Revenue Code (Code) will not fail to be an HDHP under section 223(c)(2)(A) merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Therefore, an individual covered by the HDHP will not be disqualified from being an eligible individual under section 223(c)(1) who may make tax-favored contributions to a health savings account (HSA).
Part of the response to COVID-19 is removing barriers to testing for and treatment of COVID-19. Due to the nature of this public health emergency, and to avoid administrative delays or financial disincentives that might otherwise impede testing for and treatment of COVID-19 for participants in HDHPs, this notice provides that all medical care services received and items purchased associated with testing for and treatment of COVID-19 that are provided by a health plan without a deductible, or with a deductible below the minimum annual deductible otherwise required under section 223(c)(2)(A) for an HDHP, will be disregarded for purposes of determining the status of the plan as an HDHP.

BACKGROUND

Section 223 of the Code permits eligible individuals to deduct contributions to HSAs.1 Among the requirements for an individual to qualify as an eligible individual under section 223(c)(1) is that the individual be covered under an HDHP and have no disqualifying health coverage. As defined in section 223(c)(2), an HDHP is a health plan that satisfies certain requirements, including requirements with respect to minimum deductibles and maximum out-of-pocket expenses.
RELIEF

Due to the unprecedented public health emergency posed by COVID-19, and the need to eliminate potential administrative and financial barriers to testing for and treatment of COVID-19, a health plan that otherwise satisfies the requirements to be an HDHP under section 223(c)(2)(A) will not fail to be an HDHP merely because the health plan provides medical care services and items purchased related to testing for and treatment of COVID-19 prior to the satisfaction of the applicable minimum deductible.
As a result, the individuals covered by such a plan will not fail to be eligible individuals under section 223(c)(1) merely because of the provision of those health benefits for testing and treatment of COVID-19.

1 Tax-favored contributions may also be made on behalf of eligible individuals by their employers. See Q&A 19 of Notice 2004-2 (2004-2 I.R.B. 269).

This guidance does not modify previous guidance with respect to the requirements to be an HDHP in any manner other than with respect to the relief for testing for and treatment of COVID-19. Vaccinations continue to be considered preventive care under section 223(c)(2)(C) for purposes of determining whether a health plan is an HDHP.
This notice provides flexibility to HDHPs to provide health benefits for testing and treatment of COVID-19 without application of a deductible or cost sharing. Individuals participating in HDHPs or any other type of health plan should consult their particular health plan regarding the health benefits for testing and treatment of COVID-19 provided by the plan, including the potential application of any deductible or cost sharing.
DRAFTING INFORMATION

The principal author of this notice is Jennifer Solomon of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes), though other Treasury Department and IRS officials participated in its development. For further information on the provisions of this notice, contact Jennifer Solomon at (202) 317-5500 (not a toll-free number).

Top 5 Reasons HSAs are so Popular

HSA – Health Savings Account

A Health Savings Account is a popular option for employees who elect one of the increasingly prevalent High Deductible Health Plans. As a tax-advantaged savings account, an HSA is used in combination with a High Deductible Health Plan, or HDHP. Employees can use their HSA dollars to cover any qualified medical expense.

  • HSAs are triple-tax advantaged: funds saved in the account are tax-exempt, interest and earnings gained in the savings account are tax-exempt, and payments made from the HSA for qualified expenses are tax-exempt
  • Participants own their individual HSAs and it can travel with them from employer to employer, in retirement and during unemployment
  • HSA contributions roll from year to year; there is no deadline for using the funds and the FSA use-it-or-lose-it rule does not apply
  • HSAs can become a supplemental retirement account. While health expenses continue to be eligible expenses for retirees, in addition, retirees can pay for any expense from their HSA with no additional tax penalties
  • B3PA has partnered with HealthCare Bank to act as the HealthCare Bank for our HSA clients HeathCare Bank offers a full suite of investment options for HSA account holders with account balances exceeding $2,000
  • B3PA fully integrates HSA accounts with our Limited or Post-Deductible FSA Options, allowing your employees to get even more tax advantage reimbursement savings
  • The Provider Pay and Claims Integration features B3PA offers which are most advantageous to HSA clients using an HSA

What You Can Do with an HSA:

  • Earnings are tax-advantaged. Any earnings on your HSA funds aren’t subject to taxation with the B3PA HSA.
  • Funded by Employee Contributions. Pre-tax contributions, made by the employee, fund the account.
  • Outside Contributions May be Made. Employers and other third parties are allowed to contribute to the employee’s HSA.
  • Use-It-or-Lose-It Rule Does Not Apply. Unlike the Flexible Spending Account, dollars unused at the end of the plan year are not lost.
  • Employee Determines Amount Withheld Each Paycheck. The employee is in control of the dollar amount withheld, prior to payroll taxes, each month to fund the account.
  • You Can Add Flexibility & Depth to Your Plans. Health benefits and retirement plans can be improved with secure, FDIC-insured financial accounts.
  • Save Money on Health Insurance Premiums. Save by offering HSAs, along with high deductible health plans.
  • Healthier Lifestyle Choices Can Be Promoted. Through increased employee involvement and use of 100% covered preventative care, healthier lifestyle choices are encouraged.
  • Go Green! Digital online claims, statements, and direct deposit reimbursements contribute to a paperless lifestyle.
  • Limited and Post-Deductible Options for HSA Participants
  • Employees who elect a Health Savings Account (HSA) in conjunction with a High Deductible Health Plan are ineligible for a full-fledged FSA. There are still FSA options for these employees: Limited Purpose FSA: Eligible to reimburse only dental and vision expenses
  • Post-Deductible FSA: Reimburses dental and vision expenses only, until the IRS statutory deductibles are met where it converts to a full FSA, able to reimburse all FSA eligible expenses.
  • Combination Limited Post-Deductible FSA: Reimburses dental and vision expenses; after the IRS statutory deductibles are met, eligible to reimburse all FSA expenses

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