Beginning 2012, the ceilings on Health Savings Accounts will increase to $6,250 for an individual with family coverage (currently $11,900) and to $3,100 for self-only coverage (currently $2,400). Individuals born before 1958 can make $1,000 more in contributions. Limits on out-of-pocket costs, such as deductibles and co-payments will increase to $12,100 for individuals with family coverage (currently $11,900) and to $6,050 for self-only coverage (currently $5,950). The minimum policy deductibles will remain at the current minimum of $2,400 for family coverage and $1,200 for self-only coverage.
A health savings account is a tax advantaged, medical savings account available to taxpayers with high deductible health plans (a health insurance plan with lower premium and higher deductibles). The funds contributed to an account are not subject to federal income tax at the time of deposit. Unlike a flexible spending account, funds roll over and accumulate year to year if not spent. Health Savings Accounts are owned by the individual, which differentiates them from company-owned Health Reimbursement Agreements. Health Savings Account funds may be used to pay for qualified medical expenses at any time without federal tax liability or penalty except for over-the-counter medications that can only be purchased with Health Savings Account funds with a doctors prescription. Withdrawals for non-medical expenses are treated very similarly to those in an individual retirement account in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier. Health Savings Account funds can be withdrawn for any reason, but withdrawals that are not for documented qualified medical expenses are subject to income taxes and a 20% penalty. The 20% tax penalty is waived for persons who have reached the age of 65 or have become disabled at the time of the withdrawal.
Qualified medical exepenses include:
Payments to doctors, dentists, surgeons, chiropractors, psychologists, counselors, physical therapists, osteopaths, podiatrists, home health care nurses, cost of care for chronic cognitive impairment
Premiums for medical insurance (but not if paid by another, or with pre-tax money)
Premiums for qualifying long-term-care insurance, depending on the taxpayer’s age
Payments for prescription drugs and insulin
Payments for devices needed to treat or compensate for a medical condition (crutches, wheelchairs, prescription eyeglasses, hearing aids)
Mileage for travel to and from doctors and medical treatment
Necessary travel expenses
Non-qualified medical expenses include:
Health club memberships (to improve general health & fitness)
Cosmetic surgery (except to restore normal appearance after an injury or to treat a genetic deformity)