Health Savings Account Changes in 2016

This is one in a regular series of notices regarding Health Care Issues and Health Care Reform written in understandable language.  Unless specified differently, opinions in this article are my own.  I hope it is of interest to you. -  Jim Chesterfield

Before we look at the changes in plan designs and contributions for 2016, let's start with some basic background. 

A Health Savings Account is a way to set aside tax free money to pay for medical claims.  It requires a qualified high deductible health plan and a bank account (the “HSA”) in which to deposit your money for paying claims.  The act of depositing your money into the HSA is when it becomes tax free, not when you spend it.  Unlike a flexible spending account which has the “use it or lose it” rule, unspent HSA funds roll over every year until you spend them on qualified medical expenses, as defined by legislation and presented to us in IRS Publication 502.  Interest earned on the HSA balance is tax free and when the money is spent on qualified expenses, it comes out of the HSA account tax free. 

There are minor changes as we move from 2015 to 2016. 

Contribution limit - Single  (same as 2015)

$3,350

Contribution limit – Single with Dependent(s)  (up from $6,650 in 2015)

$6,750

Additional amount for policy holder age 55 or older

$1,000

Additional amount for covered spouse age 55 or older (setup rules apply)

$1,000

 

 

Maximum possible contribution – Single (55 or older)

$4,350

Maximum possible contribution – Single plus spouse (both 55 or older)

$8,750

Remember, HSA funds may not be used to purchase on over-the-counter drug unless it is prescribed by a physician. 

The cost of spending your HSA money on non-qualified medical expenses is paying the taxes you saved when you placed the money in your HSA account plus a penalty of 20% of that amount.

Please email or call me (317-353-3700) if you have any questions about these changes.