1. What is a Health Savings Account (HSA)?

An HSA is an account established by an individual to pay for health care. To set up an HSA, the individual must be covered by a federally qualified HDHP. HSAs are owned by the individual, balances roll over from year to year and the funds are portable, meaning the employee keeps them if they leave the HDHP plan or state service. The funds in an HSA can be used to pay for qualified medical expenses that are not covered by your health plan, and can be saved for future expenses on a pre-tax basis. The funds can also be invested. Contact CYC for investment options. See question #12 for more information.

2. How is an HSA different from the Flexible Spending Accounts (FSA) that are offered to state employees?

A participant is only eligible for an HSA if they are enrolled in a federally qualified HDHP. A participant may not enroll in both an HSA and a regular health care FSA at the same time, although the FSA can be converted to an allowed Limited Purpose Flexible Spending Account (LPFSA). Both types of accounts allow a participant to set aside money pre-tax to pay for healthcare expenses, however, there are some key differences shown in the table below:

HSA and Medical FSA Key Differences

 

HSA

FSA

Type of health insurance plan it works with

HDHP only

Any type

Account ownership

Owned by individual

Owned by employer

Who contributes?

Can be anyone: employer, employee, or other. See employer contribution amounts here.

Usually only the employee contributes. State employers do not contribute.

Do the funds roll-over from year to year?

Yes

Up to $550 will rollover to the next plan year.

What if the participant leaves state service?

The HSA is portable because it is owned by the participant. HSAs are not subject to COBRA continuation, when you leave state employment you keep the funds in your account, but you become responsible for paying any HSA associated fees and there will be no future employer contribution to your account.

FSAs are subject to COBRA continuation and a participant can choose to keep their FSA open and active. Otherwise, expenses can only be incurred for reimbursement through the last day of the month of the participant’s last paycheck.

When can the participant change their annual election contribution? Anytime - contribution changes will be effective the first of the month following the date on which the Change of Election Request Form is received.

FSA elections can only be changed:

 

3. Do I have to use my HSA to pay for my deductible?

No, you choose how you pay for your deductible.

4. What is a qualified medical expense?

See ConnectYourCare eligible expenses.  

5. Are there expenses that I can’t use my HSA to pay?

Yes, some of the expenses include: cosmetic surgery, exercise equipment, fitness programs, household help, teeth whitening, and family or marriage counseling. See a list of qualified expenses.

6. Do I have to enroll in the High Deductible Health Plan in order to open an HSA?

Yes, you cannot enroll in a state sponsored HSA through your employer unless you are enrolled in the High Deductible Health Plan (HDHP).

7. Who can add money to the HSA?

Anyone can contribute money to your HSA. Your employer can make pre-tax contributions to your HSA. You can also choose to contribute tax-free dollars through your payroll. Any others who choose to contribute to your account would do so on an after-tax basis, although you would be able to deduct the contribution from your gross income on your tax return.

8. If I receive a contribution to my HSA in the form of a gift (from friends/family), can I still deduct the contribution from my gross income on my tax return?

Yes. Contributions made to an HSA by a family member on behalf of an eligible individual are deductible by the eligible individual in computing adjusted gross income. The contributions are deductible whether or not the eligible individual itemizes deductions.

9. Can I use a paycheck deduction to contribute additional money into my HSA?

Yes, you can arrange this through your payroll office. When you complete the HSA enrollment process, you will have the option to choose a pre-tax paycheck deduction amount. Note: LTEs are eligible to contribute to an HSA through payroll deduction if they are benefit eligible.

10. Is there a limit on how much money I can contribute to the HSA?

Yes, the limits are available online in the IYC HSA Information section. The IRS updates the annual limits each year, so the limit in future years may be different. All contributions, including those made by your employer or another person, are combined when applying the contribution limit.

11. Do I have to use the money in my HSA before the end of each year?

No, your HSA balance will roll over from year to year.

12. Does my HSA earn interest?

Yes, your HSA balance earns interest. You can also choose to invest a portion of your HSA balance once you have a $1,000 balance in your account. More information is available www.connectyourcare.com/ETF.

13. Is there a tax benefit to having an HSA?

Yes, the contributions made by your employer are not taxable income. This money is yours, tax-free, as long as you spend it on qualified medical expenses. You can also make pre-tax contributions to your HSA, contact your payroll office to arrange.

14. I'm enrolled in the High Deductible Health Plan with an HSA for myself only. Can I use my HSA to pay for my spouse, domestic partner or children's medical expenses?

Yes, as long as you use the funds to pay for qualified medical expenses, you can pay for any family member who is a tax dependent on your tax return. You may also use the funds for medical expenses incurred by your child who is claimed as a tax dependent by his/her other parent.

15. What if my spouse and I file separate tax returns?

The IRS views spouses as one tax unit, even if filing as "married filing separately", so if either spouse is eligible for a family contribution limit, that is intended to cover both spouses. The IRS suggests that the family limit be split evenly between the spouses, unless a separate allocation is desired.

16. What happens to my HSA if I change health plans, terminate employment or retire?

The money in the HSA belongs to you. You can continue to use the money in your HSA to pay for qualified medical expenses but you can no longer make contributions to the account unless you are enrolled in another HSA-eligible HDHP.

17. When can I withdraw money from my HSA?

You can withdraw money at any time if it’s used for qualified medical expenses. However, if you withdraw money for other purposes, your withdrawal will be subject to income tax (if the contribution was pre-tax) and a 20% penalty.

18. If I change to another employer who offers an HSA contribution, can I use the same HSA?

You can keep your HSA open as long as you choose. This is your account. Your new employer may or may not contribute to this HSA. Once you leave state service you are responsible for any account maintenance fees.

19. What happens to my HSA once I turn age 65?

You can continue to use your account tax-free for qualified medical expenses. Once you turn age 65, you can also use your account to pay for things other than medical expenses. If used for other 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-qualified medical expenses must pay income tax and a 20% penalty on the non-qualified withdrawal.

20. What happens to my HSA if I get a divorce?

The HSA is an asset that is treated like any other. The HSA may be transferred between two divorcing parties as part of the divorce agreement. Either parent may use HSA funds to cover their children's eligibility expenses under IRS Regulation and it does not matter which parent considers the children to be dependents for income tax purposes or which parent maintains physical custody of them.

21. Can I use my HSA to pay for medical expenses incurred by my children who are claimed as tax dependents by my former spouse?

Yes.

22. Can I use my HSA to pay for medical expenses that I incurred prior to opening my account?

No, only expenses incurred after establishing your HSA.

23. Can I use my HSA to pay for medical services from out-of-network providers?

Yes, you can use your HSA to pay for any qualified medical expenses from any provider.

24. I'm retired and enrolled in the High Deductible Health Plan with an HSA. Can I still contribute money to my HSA?

Yes, as long as you are not currently eligible for or enrolled in Medicare. Retirees are required to enroll in the HSA each year if they elect the state-sponsored High Deductible Health Plan (HDHP). 

25. I have a Flexible Spending Account (FSA). Can I still have an HSA?

It depends. You can have a limited-purpose Health Care FSA, which only allows you to pay for qualified vision, dental and post-deductible expenses. However, the IRS prohibits you from having a general-purpose Health Care FSA and an HSA at the same time because they have almost identical qualified medical expenses, and because the IRS considers a Health Care FSA to be “other health insurance coverage”. It is permissible to still have a Dependent Day Care Account when you have an HSA.

26. I have a general-purpose health care FSA. Can I still enroll in the HDHP, even though I can’t have an HSA and FSA at the same time?

You can enroll in the HDHP for the next plan year if you are enrolling during the annual open enrollment period. You will be required to spend out any remaining FSA funds before the HDHP can take effect and before you are eligible to open an HSA. In some cases your FSA funds may be converted to a limited-purposed FSA; check with your employer on this.

27. What survivor benefits are associated with an HSA?

Your HSA would transfer to your beneficiary tax-free.

28. Do I need to keep my receipts showing what I withdrew from my account?

It is recommended that you keep your receipts. If you are audited by the IRS, you may need to explain any funds you used from your HSA.

29. Am I required to to the Customer Identification Program (CIP) for my HSA to be established? 

Yes. If the HSA Custodian Bank is unable to verify your identify, they may contact you for additional information, such as a copy of your driver's license, a W-2 tax form, Social Security card, or another form of acceptable identity documentation. 

If you do not respond with the necessary documentation within 90 days, the HSA account will be closed and your High Deductible Health Plan (HDHP) enrollment will be invalidated. Furthermore, your health insurance coverage will change from the HDHP to the IYC Health Plan, the non-HDHP Uniform Benefit plan design, with your current health plan. You will not be able to change your health insurance coverage after the 90 day deadline has passed and your HDHP coverage has been converted to the IYC Health Plan. 

30. How do I update my HSA beneficiary? 

You can update your HSA beneficiary through your CYC Online Account under Settings and Preferences. You can also submit an HSA Designation of Beneficiary Form to CYC. 

31. Can I transfer HSA funds from another administrator into my new HSA with ConnectYourCare?

Yes, you can transfer any amount of funds from a previous HSA into a new HSA with CYC. The amount you transfer does not impact your annual HSA contribution limit. 

To transfer funds, complete a transfer of assets form obtained from your previous HSA administrator. You will need the following information to complete the form:

  • Name of Receiving Administrator / Trustee / Custodian -ConnectYourCare FBO
  • Address of Receiving Administrator / Trustee / Custodian - PO Box 851287, 6300 Wayne Road, Westland MI 48185

 

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