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Small Business Employee Benefits and HR Blog

Affordable Care Act's Impact on Health Savings Accounts (HSAs)

hsa-2The Affordable Care Act (ACA) has impacted many areas of healthcare and health insurance. As such, the rules for account-based health plans, including health savings accounts (HSAs) have changed. This article discusses how healthcare reform and the ACA have impacted HSAs.

Background on Health Savings Accounts

HSAs are individual bank accounts owned by employees that allow for tax-free payment or reimbursement of eligible medical expenses. An employer usually offers an HSA-qualified high-deductible health plan and an HSA.

Either the employer, the employee, or a third party may contribute to the accounts. In order to have an HSA, an individual must have an HSA-qualified high-deductible health plan. Individuals may receive reimbursements for unreimbursed medical care expenses as defined by IRC 213(d). In addition, unemployed individuals may receive reimbursements for health insurance premiums.

Increased Penalty for Non-Medical Withdrawals

For individuals under the age of 65, there are penalties for withdrawing money from an HSA for non-medical expenses. These withdrawals would be taxed as ordinary income for the account-holder. While there used to be a 10 percent penalty for non-medical withdrawals, the penalty has been increased to 20 percent this year.

Exclusion of Over-the-Counter Medications

Most over-the-counter (OTC) medications will not be considered to be a qualified reimbursable expense, unless prescribed by a physician. The new restrictions do not apply to the purchases of insulin, diabetic testing supplies, contact lens solution, contact lenses, and many OTC durable medical supplies (hearing aid batteries, walkers, wheelchairs, orthopedic aids, etc.)

Additional Resources

For information on HSA minimum required deductibles, and out-of-pocket-maximums in 2015, see Health Savings Account - HSA 2015 Rules & Requirements.

For in-depth information on HSA contribution limits in 2015, see 2015 HSA Contribution Limits.

For tips on maximizing HSAs, see 5 Tips to Maximize Your HSA.

Do you have any questions about HSAs? Leave a comment below.

Learn the differences between HSAs, HRAs, and FSAs