HSA vs. HRA

• To understand the HSA, it is helpful to use the Health Reimbursement Account (HRA) as a frame of reference. The HRA preceded, and continues to coexist with, the HSA. Both account types provide an avenue to set aside tax-free money for healthcare expenses. The HRA is a short-term financial vehicle, typically held and administered by an employer. It is not insured, does not bear interest and ceases to exist at the end of the plan's year. Any funds remaining in the account at the end of its term are forfeited.
  
  

HSA Qualifications

• The qualifications to open an HSA account are that the account holder must be covered by an HDHP and be between 18 and 65 years old. Disqualifying circumstances are: having applied for Social Security payments, receiving Medicare benefits, or being claimed on another person's tax return.
  
  

HSA Eligible Expenses

• To be paid from an HSA, health expenses must be incurred by the HSA account holder, her dependent or spouse. Eligible expenses include: medical, dental and vision care; prescription drugs; acupuncture; and chiropractic care. Ineligible expenses include weight loss programs, health club memberships and cosmetic surgery.
  
  

Loss of HDHP

• If you lose your HDHP you may continue to use existing HSA funds to pay for eligible expenses. You cannot, however, continue making deposits to the account.
  
  

HSA Deposits

• The HSA is an interest-bearing, Federal Deposit Insurance Corporation-insured bank account. An account holder under 55 years of age is allowed to make annual deposits totaling $2,900 for an individual or $5,800 for a family. HSA account holders over age 55 were allowed to deposit an additional $900 in 2008, increasing to $1000 in 2009. Private contributions are tax deductible. Employers may elect to contribute to an employee's HSA.
  
  

HSA as an Asset

• When an account holder turns 65 years old, unused funds may be withdrawn for any reason and without penalty. Withdrawn funds will be taxed as income, however. If the account holder dies with funds remaining in the account, the balance becomes part of his estate and is disposed of in the same manner as other assets.