“Health Savings Accounts
What are they? HSAs are tax-advantaged medical savings accounts available to taxpayers who are enrolled in an HSA-qualified high-deductible health plan. The funds contributed to the account are not subject to federal income tax at the time of deposit. Unused amounts in one year can be carried over to following years and added to subsequent contributions.
In order to qualify for an HSA, the policyholder must be enrolled in an HSA-qualified high deductible health plan, and must not be covered by other non-HDHP health insurance or Medicare, and cannot be claimed as a dependent on someone else’s tax return.
What’s new for 2013? The HSA contribution limits and high deductible health plan out-of-pocket maximums are up slightly over 2012. For the first time in three years, the HDHP minimum required deductibles have increased.
HSA contribution limits: Individuals (self-only coverage) – $3,250 (up $150 from 2012) Family coverage – $6,450 (up $200 from 2012)
HDHP minimum required deductibles: $1,250 for self-only coverage $2,500 for family coverage
Out-of-pocket maximum: $6,250 for self-only coverage $12,500 for family coverage
(Out-of-pocket expenses include deductibles, co-payments, and other amounts, but not premiums)
Catch-up contributions (age 55 or older): $1,000
Important notes:
Effective Jan. 1, 2011, expenses incurred for over-the-counter medicines, with the exception of insulin, will not be eligible for reimbursement under a health FSA, HRA or HSA without a prescription. The penalty for using HSA funds for ineligible expenses is 20 percent of the HSA distribution.
[See also: 2012 HSA and FSA cheat sheet] Flexible Spending Accounts
What are they? Also known as a flexible spending arrangement, a flexible spending account is a tax-advantaged account that allows an employee to set aside a portion of earnings to pay for qualified medical expenses. Unlike health savings accounts or health reimbursement accounts, FSAs are more commonly offered with traditional medical plans. Unlike health savings accounts, funds in the account that are unused when the plan year is over are lost and cannot be carried over to the following year. Paper forms or a debit card may be used to access account funds. The flex spending account allows you to contribute money to the FSA for costs not covered by insurance: deductibles, co-pays, and coinsurance. In addition, you can use your FSA to pay for health care costs that health insurance doesn’t cover.
What’s new for 2013?
Contribution limits:
Starting Jan. 1, 2013, FSAs will have annual limits of $2,500 per year.
However, the average FSA participant contributes only $1,400 per year, and employers are still allowed to add supplementary funds to FSA accounts beyond the $2,500. [See also: Pros and cons of the FSA cap]
Important notes:
Effective Jan. 1, 2011, expenses incurred for over-the-counter medicines, with the exception of insulin, will not be eligible for reimbursement under a health FSA, HRA or HSA without a prescription. The penalty for using HSA funds for ineligible expenses is 20 percent of the HSA distribution.
Fast facts: Only 12 percent of employees contribute $2,500 or more to their company’s FSA 39 percent say they contribute less than $2,500 46 percent don’t participate in an FSA at all”