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Health Savings Account Questions and Answers

Health Savings Account Basics

What is a Health Savings Account (HSA)?

An HSA is a trust or custodial account established exclusively to receive tax-favored contributions on behalf of eligible individuals enrolled in an HSA-qualified high-deductible health plans (HDHPs). TVA's Consumer-Directed Health Plan (CDHP) meets the IRS requirements of a HDHP.

Amounts contributed to an HSA accumulate on a tax-free basis and withdrawals are not subject to tax if they are used to pay for eligible medical expenses for you and your dependents. Contributions made in one year, and not used to pay expenses in that year, will roll over and may be used to pay medical expenses in later years.  

An HSA is fully vested at all times and portable, meaning that it can move with you as your circumstances change. Once you reach age 65, you may use the HSA funds to pay for most retiree medical insurance or other medical expenses on a tax-free basis, or may take a distribution for any other reason and pay only ordinary income tax.

Who can have an HSA (i.e., make or receive HSA contributions)?

You must meet the following requirements:

  • Must be covered by an HSA-qualified HDHP. This means you must be enrolled in the CDHP medical option to be eligible for the HSA.
  • Cannot be enrolled in Medicare
  • Cannot be claimed as a dependent on someone else's tax return
  • Cannot be covered by another health plan that is not HSA-qualified (with some exceptions, including vision coverage, dental coverage, accident and disability coverage, and employee assistance programs)
  • One of the eligibility requirements to make or receive contributions to an HSA is the individual cannot be covered under any other health plan that is not HSA-qualified. Please provide examples.

The following provides some scenarios of this eligibility provision.

Scenario (Assumes all other eligibility requirements are met)

Eligible to make or receive contributions to an HSA

You are enrolled in the CDHP plan only.

Yes

You are enrolled in the 80 percent or Copayment PPO plan.

No

You are enrolled in the CDHP plan and Medicare.

No

You are enrolled in the CDHP plan and your spouse is also enrolled in an HSA-qualified high-deductible health plan through his/her employer.

Yes

You have family CDHP coverage and your spouse has non-high deductible health plan coverage* for him/her and the children (i.e., you are not covered under your spouse's plan).

Yes

You have family CDHP coverage and your spouse has non-high deductible health plan coverage* and a general purpose health care flexible spending account (FSA) or health reimbursement account (HRA). This is regardless of whether or not you are covered under your spouse's medical plan.

No

You have family CDHP coverage and your spouse has family non-high deductible health plan coverage* which covers you.

No

 

*Non-high deductible health plan coverage is a health plan that does not meet the IRS requirements for a high deductible health plan, such as a traditional copay plan, TRICARE, etc.)

There are also certain exceptions that allow an individual to have ‘permitted insurance' and still meet this eligibility requirement. Permitted insurance is insurance under which substantially all of the coverage provided relates to liabilities incurred under workers' compensation laws, tort liabilities, liabilities relating to ownership or use of property, insurance for a specified disease or illness and insurance that pays a fixed amount per day of hospitalization. Also, an individual does not fail to be eligible for an HSA merely because they have coverage for accidents, disability, dental care, vision care or long-term care.  

Refer to Section 223(c)(1) of the Internal Revenue Code for eligibility requirement details.

If my spouse and I both have HDHP medical coverage, how much can each of us contribute to an HSA?

If each spouse has separate coverage under a self-only HDHP, each spouse may contribute the maximum annual contribution ($3,250 in 2013) into an HSA in his/her own name. If both spouses are covered under a family HDHP, they may contribute a total of $6,450 to an HSA in 2013. If both spouses are over the age of 55, and both have HSAs in their own name, both spouses may also make the full “catch-up” contribution ($1,000).

If I am covered under the CDHP as well as my spouse's plan, am I eligible for an HSA?

Only if your spouse's plan is an HSA-qualified HDHP. In order to be eligible for an HSA, you cannot also be covered under a spouse's plan that is not HSA-qualified.

If I meet the HSA eligibility requirements under Section 223(c)(1) of the Internal Revenue Code and am also eligible for medical benefits through the Department of Veterans Affairs (VA), may I contribute to an HSA?

An otherwise eligible individual who is eligible to receive VA medical benefits, but who has not actually received such benefits during the preceding three months, is an eligible individual under Section 223(c)(1). An individual is not eligible to make HSA contributions for any month, however, if the individual has received medical benefits from the VA at any time during the previous three months.  

What are the benefits of an HSA?

  • Portability – An HSA is owned by you. HSA funds belong to you for life – even if you switch jobs, change insurance plans, or retire.
  • Savings – You can save the money in your HSA for future medical expenses and grow your account through investment earnings. Unused money rolls over year-to-year, earning interest tax-free. There is no “use it or lose it” rule.
  • Tax Savings – Triple-tax savings: tax-deductible or pre-tax contributions; tax-free earnings on investments; and tax-free withdrawals for qualified medical expenses.
  • Flexibility – You can use the money in your HSA to pay for current medical expenses, including expenses that your medical plan may not cover. For example, you can withdraw money tax-free to pay for deductibles, coinsurance, contact lenses, prescription medicines, vision care, and dental treatment. Or save the money for future needs, such as medical expenses after retirement (before Medicare), out-of-pocket expenses when covered by Medicare, long-term care expenses, etc.
  • Choice and Control – You make all the decisions about:
    • Whether or not you want to make contributions to the HSA (up to the maximum allowed annual contribution)
    • Whether to save the money for future expenses or pay current medical expenses
    • Whether to invest any of the money and which investments to select
    • Which trustee will hold the account

With HSA Bank, you always have access to your HSA funds with a debit card, check or via the internet banking system.

Who is the trustee or custodian of my HSA?

An HSA takes the form of a tax-exempt trust or custodial account. An HSA trustee or custodian holds your balances for you, receives and records contributions and processes distributions.

Your HSA will be serviced by HSA Bank. TVA contributions to your HSA will be made to HSA Bank. If you wish, you have the option to move your funds to another trustee of your choice.

How do I open my HSA?

Employees: You will open your HSA through TVA’s online Open Enrollment site available through eBenefits on InsideNet. Under Self Service Solutions, click Benefits, then eBenefits, then Open Enrollment.

In late December, you will be sent a Welcome Kit containing important information about your account, including how to designate authorized signers and beneficiaries. For security purposes, your HSA Bank VISA® Debit Card will arrive in a separate package within five to ten business days after you receive your Welcome Kit with tips on how to get started using your card to pay for qualified medical expenses.

Retirees: There are two options available for you to enroll in the HSA.

  • You can open your HSA by going to https://secure.hsabank.com/tvaenroll and completing the Online Enrollment process. 
  • Included with your medical plan election packet you will find a HSA Bank Application Form to complete.  Once you have completed this form, you can mail it to the address on the front page of the form, or fax it to HSA Bank at 877-851-7041.

If you complete your HSA enrollment prior to December 15, you will be sent a Welcome Kit containing important information about your account, including how to designate authorized signers and beneficiaries in late December. For security purposes, your HSA Bank VISA® Debit Card will arrive in a separate package within five to ten business days after you receive your Welcome Kit with tips on how to get started using your card to pay for qualified medical expenses. If your enrollment is completed after December 15, you can expect to receive your debit cards and welcome kits within 7-10 business days.

Contributing to your Health Savings Account  

How can I contribute to my HSA?

Employees: The easiest way is through payroll deductions.

If you have not opened your HSA:  After opening your HSA on the Online Enrollment site, you will have the opportunity to set up contributions to start on your first paycheck in January. Or, you can set up or change your contributions at any time during 2013. Here’s how:

  • Access InsideNet. Click Self Service Solutions.
  • Enter your Employee ID and PIN.
  • Click Money
  • Click Health Savings Account
  • Click Update and follow the steps

If you already have an HSA, you can set up or change your contributions at any time through Self Service by following the steps outlined above.

If you would like to make a post-tax contribution you can mail contributions using a deposit slip from your HSA checkbook or contribution form on the back of your quarterly statement. Funds can be automatically transferred from a personal checking or savings account using the electronic transfer option through HSA Bank’s internet banking site. You can receive a tax deduction for post-tax contributions on your annual income tax return.

If you discontinue your enrollment in the CDHP in the future, you can continue to use the funds in your HSA for qualified medical expenses but can no longer contribute to the account.

Retirees: You can contribute to your HSA by:

  • Mailing contributions using deposit slips from your HSA checkbook or contribution form on the back of your quarterly statement.
  • Automatically transferring contributions from a personal checking or savings account through HSA Bank’s internet banking site.

You can receive a tax deduction for post-tax contributions on your annual income tax return.

If you discontinue your enrollment in the CDHP in the future, you can continue to use the funds in your HSA for qualified medical expenses but can no longer contribute to the account.

How much can I contribute to my HSA?

TVA will make contributions of $600/individual or $1,200/family after you open your HSA account. You decide whether or not you want to make additional contributions to your HSA.  

The maximum HSA contribution from all sources (which includes TVA's contribution) for 2013 is $3,250/individual and $6,450/family. If you are age 55 or older you can also make additional “catch-up” contributions. The maximum annual catch-up contribution is $1,000. These amounts are mandated by the IRS.

  • Both my spouse and I are over the age of 55, can we both contribute the catch-up contribution in my HSA?
  • As long as you are both only covered by the CDHP, you are both able to contribute. However, if your spouse wishes to make a catch-up contribution, he/she would need to do so in an account established in his/her own name (i.e., your spouse may not put his/her catch-up contribution into your account).

How much should I contribute to my HSA?

Since HSA contributions reduce your taxable income, and since the funds roll over from year-to-year, you can benefit from making the full annual contribution to your HSA. However, you are in control of your HSA contributions, so you can choose how much to contribute (up to the maximum allowed annual contribution) as your circumstances dictate.

Will HSA Bank notify me if I exceed my allowable contribution amount?

No. This is your account and you have certain responsibilities under the law. It is solely your responsibility to keep track of the contributions deposited into your account. Excess contributions are subject to an excise tax.

How do I correct over contributing to my HSA?

You have until the time you file your tax return or April 15, whichever comes first, to remove excess contributions from your account. If the excess contribution is not removed from your account, you will be subject to a 6% penalty and income tax on that amount. The accountholder will need to complete the Excess Contribution Removal form and return it to HSA Bank to have the funds removed.  

Using your Health Savings Account  

How can I use my HSA?

It's easy to use the money in your HSA. Once your account is open you will be sent a HSA Bank VISA ® debit card. Checks are also available for a fee. You just pay for qualified expenses directly using one of these methods. Be sure to keep your receipts.  

You can use your HSA money to pay for any “qualified medical expense” permitted under federal tax law that you incur after your HSA is established. You can use the money to pay for medical expenses for yourself, spouse, and dependent children. You can pay for expenses of your spouse and dependent children even if they are not covered by the CDHP.  

Any HSA money used for purposes other than to pay for “qualified medical expenses” is taxable as income and subject to an additional 20% tax penalty. After you turn age 65, the 20% additional tax penalty no longer applies.

What is a qualified medical expense?

In order to be considered qualified, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. This would include office visits, hospitalization, or prescription drugs.

Qualified medical expenses are defined in section 213(d) of the Internal Revenue Code and a list of qualified expenses is available on the IRS website, www.irs.gov , Publication 502, "Medical and Dental Expenses."

The following is a partial list of items that are considered qualified medical expenses for HSA reimbursement. This list is not complete and should serve only as a reference.

Alcoholism treatment

Ambulance

Artificial limb

Artificial teeth

Chiropractors

Contact lenses

Crutches

Dental treatment

Dermatologist

Drug addiction treatment (inpatient)

Eyeglasses

Guide dog

Gynecologist

Hearing aids

Hospital services

Laboratory fees

Lead-base paint removal

Life-care fees

Lodging for outpatient treatment

Nursing care

Obstetrician

Operating room costs

Ophthalmologist

Optician

Organ transplant (including donor's expenses)

Orthopedic shoes

Orthopedist

Osteopath

Oxygen and equipment

Pediatrician

Physician

Podiatrist

Post-natal treatments

Prenatal care

Prescription medicines

Psychiatrist

Psychologist

Radium treatment

Specialists

Spinal tests

Splints

Sterilization

Surgeon

Phone/TV (hearing impaired)

Therapy

Vaccines

Vasectomy

Vision

Vitamins (prescribed)

Wheelchair

X-rays

 

 

Do my HSA funds earn interest?

The money in your HSA earns tax-free interest daily.  Rates and yields are subject to change.

Can I use my HSA to pay for medical expenses incurred before I established my HSA?

No. You cannot use funds in your HSA to pay for expenses you incurred before your account was established or opened.

What happens if I accidentally use my HSA funds for a non-qualified expense?

If funds in the account are not used for qualified medical expenses, you will need to claim the amount as income on your tax return. That amount will be subject to a 20% penalty if you are under age 65. However, you can avoid taxes and potential penalties if the funds are repaid by April 15th of the year following the year in which you paid for the non-qualified expense(s).

What happens to the money in a HSA after I turn age 65?

You can continue to use your account tax-free for out-of-pocket health expenses. When you enroll in Medicare, you can use your account to pay Medicare premiums, deductibles, copays, and coinsurance under any part of Medicare. If you have retiree health benefits through your former employer, you can also use your account to pay for your share of retiree medical insurance premiums. (Please note that the premium for TVA's Supplement to Medicare can not be automatically taken from your HSA. Instead, you would have to reimburse yourself from your HSA for any TVA Supplement to Medicare premiums you pay.) The one expense you cannot use your account for is to purchase a Medicare supplemental insurance or “Medigap” policy.

Once you turn age 65, you can also use your account to pay for things other than qualified medical expenses. If used for non-qualified expenses, the amount withdrawn will be taxable as income but will not be subject to any other penalties. Individuals under age 65 who use their accounts for non-medical expenses must pay income tax and a 20% penalty on the amount withdrawn.

Investing your Health Savings Account funds

Will I have a choice in how funds in my HSA are invested?

Yes. Your HSA funds earn interest and your account is FDIC insured. In addition, HSA Bank offers non-FDIC insured investment options for individuals who wish to invest their HSA funds. HSA Bank’s TD Ameritrade Corporate Services option provides accountholders access to stocks, bonds and over 13,000 mutual funds. Trades can be made online or by phone. You can track your investments through online access and quarterly statements. Online access also allows you to get quotes, make trades and fully manage your investments. HSA Bank does not charge for these services; however, trading fees collected by TD Ameritrade may apply.

HSA Bank’s Mutual Fund Selection option provides you with the option to invest in a variety of mutual funds. You determine the percentage to invest in each fund and which funds to sell first if funds are needed to pay a medical expense. This 401(k)-type investment program has an annual fee of $24.00.

Investment accounts are not FDIC insured, may lose value and are not a deposit or other obligation of, or guarantee by the bank.

Replacement of investment losses is subject to the annual contribution limits of the HSA.

When can I begin to invest funds from my HSA?

You can begin making investments once you have opened both your HSA and a brokerage account, and the initial contribution has been made to the bank account.  There is no minimum balance to invest funds. However, remember to keep enough in the HSA to cover the monthly fee. Funds are easily moved back to your HSA account should you need to use them. Funds in investments are not available for use via the HSA Bank Visa debit card.

Is there a cost for the investment options?

HSA Bank does not charge fees for the investment piece, however TD Ameritrade has a Commissions and Service Fee schedule that can be accessed on the HSA Bank website at www.hsabank.com/tva.

For the Mutual Fund Selection there is an annual fee of $24.00. Certain mutual funds may have a short term redemption fee. There are no trading fees.

How do I open an Investment Account?

To open an investment account, complete a TD Ameritrade application from the HSA Bank website and fax it to HSA Bank.  After the application has been processed TD Ameritrade will send a welcome kit within 5-7 business days.

For the Mutual Fund Selection, log in to HSA Bank’s Internet Banking system to sign up for this self–directed investment option

A Health Savings Account and Your Medical Plan  

What is a High-Deductible Health Plan (HDHP)?

A HDHP is a health plan with a deductible amount that qualifies you to open an HSA. To participate in an HSA, you must be enrolled in a HDHP. The Internal Revenue Service (IRS) has released the 2013 requirements for HDHP deductibles, HDHP maximum out-of-pocket spending amounts, and annual HSA contribution limits. The amounts are adjusted annually for inflation.

Will the CDHP option change?

Based on the IRS’ 2013 requirements for a high-deductible health plan, the deductibles for the CDHP will change to $1,250 for Individual coverage and $2,500 for Family coverage.

If I pay for expenses out of my HSA that are not covered by the CDHP does it count toward the CDHP deductible or out-of-pocket maximum?

No. Only charges for services covered by the plan can be applied toward the deductible or out-of-pocket maximum.  

A Health Savings Account and Flexible Spending Account

(Note: This section only applies to employees.)  

Can I have an HSA and a health care flexible spending account (FSA)?

No. TVA’s health care FSA is a general purpose account. You can not have both a general purpose FSA and an HSA.

Is there an issue if I have a 2012 health care flexible spending and have not used all my contributions by December 31, 2012?

The IRS does have special contribution rules that apply in this case. Further information can be obtained from the IRS at www.irs.gov. In particular, reference should be made to Revenue Ruling 2004-45. 

General Information  

What happens to my HSA if I no longer am enrolled in the CDHP?

You can continue to use the funds in your HSA for qualified medical expenses. You may not contribute to the account if you are not enrolled in the CDHP.

Are there any fees associated with my HSA account?

Employees: You do not have to pay HSA Bank’s administration fee for your HSA account as long as you are employed at TVA and enrolled in the CDHP.

If you are no longer enrolled in the CDHP, you will have an HSA Bank’s standard monthly administrative fee deducted from your HSA by HSA Bank if your balance is less than $3,000.00. There is no fee if your balance is $3,000.00 or more.

If you decide to use one on the investment fund options, you will be responsible for any administration or brokerage fees associated with the investment fund.  Other fees, such as those for account closing, will be highlighted in the Welcome Kit to be received upon enrolling in the HSA and are charged directly to the account. 

Retirees: You will have a monthly administration fee of $1.75 deducted from your HSA by HSA Bank if your balance is under $3,000.00. There is no fee if your balance is $3,000.00 or more. Other fees, such as those for account closing, will be highlighted in the Welcome Kit to be received upon enrolling in the HSA and are charged directly to the account.

Who is responsible for tracking expenses paid from my HSA?

HSA Bank tracks the total dollar amount spent from your HSA and provides that information to both you and the IRS. You will receive a quarterly statement similar to a regular checking account showing average balance, closing balance and any debits or credits to the account. You also have online access to your account via HSA Bank’s internet banking system and can elect to receive monthly electronic statements from the internet banking system. Each year you will receive a 1099-SA and a 5498-SA statement to assist you with income tax filling. Keep copies of your medical receipts to verify how you use your funds. You are responsible to the IRS for all types of withdrawals made from your HSA.

Why is it important to keep my receipts?

You are responsible for documenting how you use your HSA. You can use your HSA money to pay for any “qualified medical expense” permitted under federal tax law that you incur after you open your HSA. HSA Bank reports HSA distributions to the IRS.

Qualified medical expenses are defined in section 213(d) of the Internal Revenue Code and a list of qualified expenses is available on the IRS website, www.irs.gov, Publication 502.

You need to understand what the allowable expenses are and be able to back up your claims with receipts. You can wait as long as you want after the expense is incurred to submit it to your HSA. However, no matter how old the expense is, you have to be prepared to document it fully in the year you claim it.

You are required to pay taxes on and face a 20% tax penalty (before you turn age 65) if you use any HSA money for purposes other than to pay for “qualified medical expenses”.

What happens to my HSA if I die?

If your spouse is the designated beneficiary of your HSA, your spouse may open an HSA in their name and move the funds to their account and continue to use them for qualified expenses. If you are not married, the account will no longer be treated as an HSA upon your death. The account will pass to your beneficiary or become part of your estate (and be subject to any applicable taxes). You can designate a beneficiary for your HSA through HSA Bank by visiting www.hsabank.com/tva and clicking on Online Forms and downloading the Designation of Beneficiary form.

Where can I get more information about HSAs?

Call HSA Bank at 800-357-6246, Monday – Friday, 8 am – 10 pm, ET or visit www.hsabank.com/tva  Questions can be directed to a customer service representative or by email at askus@hsabank.com.

You can also access your account any time by logging into Internet Banking, or get account balance and transaction history by calling Bankline, the automated system, at 800-565-3512. If not already set up, your Bankline PIN will default to the last four digits of your social security number.

The Department of Treasury web site, www.treas.gov , has additional information about HSAs, including related IRS forms, publications, and links to other web sites.

New Hires 

If I am a new hire (i.e., just hired during 2013) and I enrolled in the CDHP, when can I begin contributing to my HSA? And, how much can I contribute?

Both you and TVA are eligible to contribute to the HSA beginning the first of the following month that you are hired provided that you have opened the account. You can make the maximum HSA contribution for the year including the catch-up contribution, if applicable. If a contribution is made you must remain in the CDHP for what the IRS deems a testing period in order for the contribution to receive favorable tax treatment. The testing period as defined by the IRS begins with the month in which the first contribution is made and ends on the last day of the 12th month following that month. If you do not remain in the CDHP for the testing period the contributions made to the HSA will be considered taxable and be subject to a 20% tax penalty.

 

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