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Employer Q&A
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Q: What is a Health Savings Account (HSA)?
A: An HSA is an individually owned savings account, similar to an IRA or 401k retirement plan, except that funds are used to pay for healthcare costs. An HSA provides consumers with a tax-efficient method of saving and paying for qualified medical expenses.
Q: What are the tax-efficiencies of an HSA for members?
A: Individuals can contribute to an HSA tax-free. HSA funds can be invested and earnings are tax-free. Withdrawals for qualified medical expenses are tax-free.
Q: Can I contribute to my employees’ HSA’s?
A: Yes. Contributions must be comparable among all employees participating in an HSA program, in either dollar amount or percentage of HSA-compatible plan deductible. Employer contributions can be deducted directly from taxable income if you do not offer a Section 125 cafeteria plan.
Q: What are qualified medical expenses?
A: Qualified medical expenses include those for services typically covered under a traditional plan medical plan, along with other health-related services and therapies. Examples include:
  • Medical and dental deductibles and co-payments
  • Routine physical exams
  • Routine gynecological exams
  • Well-baby and well-child care
  • Eye exams, eyeglasses, contact lenses, corrective LASIK eye surgery
  • Hearing aids
  • Orthodontia
  • Expenses in excess of medical, dental and vision plan limits
  • Prescription drugs (including insulin)
  • Over the counter medications

A complete list of qualifies expenses can be found in IRS Publication 502 – and Dental Expenses at Simply enter “502” in the Search Publications field.

Q: How else can HSA funds be used?
A: HSA funds can be withdrawn for any purpose. Amounts withdrawn to pay for qualified medical expenses are not taxable. Amounts withdrawn to pay for other expenses are taxable and may be subject to a 10% penalty tax from the IRS. The penalty tax does not apply to amounts withdrawn if you are disabled or have reached age 65.
Q: What other features does an HSA offer?
A: The HSA belongs to the individual and is portable. The funds are not “use it or loose it.” But can rollover to the following benefit year. The individual keeps existing funds if they leave or terminate employment. HSA funds can be tax-free to a spouse upon death, or as taxable transfers to an estate or other beneficiary.
Q: Who is eligible for an HSA?
A: An individual can enroll and contribute to an HSA only if he or she is enrolled in an HSA-compatible, high deductible health plan. Also, the account owner must be enrolled in Medicare, claimed as a dependant on another’s tax return or in another health plan that is not a high deductible health plan.
Q: What is an HSA-compatible, high-deductible health plan?
A: An HSA-compatible, high deductible health plan is that has combined medical and pharmacy deductible of at least $1,000 (individual) and $2,000 (family). Maximum out-of-pocket expenses are $5,100 (individual) and $10,200 (family). Certain preventative benefits may be covered at 100%, not subject to the deductible. Plan requirements apply to in-network benefits; out of network benefits can be less generous. Plans can be insured or self-insured.
Q: How much can be contributed to an HSA?
A: Maximum annual HSA contributions for 2005 are the lesser of the two amounts – the annual deductible under the HSA-compatible, high deductible health plan or a dollar amount set by the IRS (In 2004, $2,650 for individual coverage or $5,250 for family coverage). The annual maximum HSA contribution will change January 1st based on the Consumer Price Index. There are no maximum limits on the account accumulation. If an individual is age 55 or older, he or she may be able to make an additional “catch-up” contribution of up to $6,000. The “catch up” contribution increases by $100/year until 2009.
Q: Is an HSA allowed for those small business owners who are not eligible for an HRA?
A: Yes.

The above is for general informational purposes only. For more information about the tax implications of an HSA or HRA program, please consult a tax advisor.

Learn more about specific insurance carrier’s HSA programs or HSA compatible plans by contacting us at: 201.808.2626 or e-mail us at :

1. Qualified medical expenses generally do not include premiums paid for health coverage except for:

  • COBRA insurance qualified
  • Long-term care insurance and expenses
  • Health insurance premiums for individuals receiving unemployment
  • Compensation
  • Medicare and retiree health insurance premiums, but not Midicare
  • Supplement premiums

2. Exceptions include EAP plans, disease management programs, wellness and “limited purpose” HRAs and FSAs, AD&D, disability, vision, long-term care, workers’ compensation or limited coverages, such as those for a specific disease or illness or a fixed amount per day of hospitalization.

3. Figures are for 2005

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Suite 140
Fairfield, NJ 07004
Phone: 973-808-2626
Fax: 973-808-2627
  Life Insurance and Annuities offered by
Metropolitan Life Insurance Company
New York, NY 10166

Mutual Funds offered by
MetLife Securities, Inc.
New York, NY 10166