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Health Savings Accounts

Pre-Tax Contribution

Health Savings Accounts (HSAs) enable workers with high-deductible health insurance to make pre-tax contributions of upto $3,100 in 2012 ($6,250 for families) to cover health care costs. These amounts are increased by $1,000 for those who reach age 55 within the tax year. No contributions are allowed once a taxpayer becomes covered by Medicare Parts A or B.

Excludable Withdrawals

Any amount paid or distributed out of an HSA that is used exclusively to pay the qualified medical expense of any account beneficiary is not included in the gross income. Distributions for qualified drugs include only those prescribed by any physician.

  • An exception is distributions not used to pay qualified medical expenses are included in the gross income and subject to a 10 percent penalty.

High Deductible Plan

For 2012, a high-deductible health plan is a plan that has atleast a $1,200 annual deductible for self-only coverage and a $2,400 deductible for family coverage. These amounts are indexed for inflation.

Out-of-pocket Limitation

Annual out-of-pocket expenses paid under the plan must be limited to $5,950 for individuals and $11,900 for families. Out-of-pocket expenses include deductibles, co-payments and other amounts (other than premiums) that must be paid for plan benefits.

Archer Medical Savings Account (MSA) Contributions

  • Archer MSAs are similar to IRAs, but they are used for health care. Typically they are used only if the HSA is unavailable, as HSAs are generally more flexible.
  • Qualified participants are self-employed individuals or employees of small businesses (less than 50 employees).
  • These accounts were designed to be and must be used in conjunction with a high deductible ($3,100 single/$6,300 family) health insurance plan.
  • The limitation on contributions to the MSA for 2012 is $2,100 single/$4,200 family. The maximum out-of-pocket expenses limit for 2012 is $4,200 single/$7,650 family.


Publication 969 – Health Medical Savings

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