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1. What are the benefits of a Health Savings Account (HSA)?

• The interest or other earnings on the assets in your HSA are tax-free.
• You can invest your HSA as you would any other investment account.
• You pay much lower insurance premiums and can put the difference in your HSA.
• You can claim a tax deduction for contributions you make even if you do not itemize your deductions on Form 1040.
• The contributions remain in your HSA from year to year until you use them.
• You can use your HSA funds for medical expenses at any time without paying taxes on the money. See the list of allowable medical expenses.
• Your HSA funds are available with checks or debit cards.
• HSA funds taken out after age 65 for purposes other than medical expenses are taxed as regular income.
• When you use your HSA funds to pay for doctors in the PerfectHealth network you will pay a discounted fee.
• Discount programs are available for prescription drugs.

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2. Who qualifies?

You must maintain an individual or family high deductible health plan (HDHP).

Limits – the table below shows the limits for annual deductibles and the maximum out-of-pocket expenses for high deductible health plans for 2004.

Type of Coverage	Plan I Annual Deductible	Plan II Annual Deductible	Plan III Annual Deductible	Maximum Annual Out of Pocket Expenses
Single	$2,000	$2,500	$5,000	$5,000
Family	$4,000	$5,000	$10,000	$10,000

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3. Is it for me?

You should set up a HSA and buy a qualified high deductible health insurance policy, if you and your family are relatively healthy and are spending less than $3,000 a year in medical expenses. In this case “medical expenses” does not mean premiums or include dental and eye wear expenses.

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Receiving Distributions

• When you use a distribution from your HSA for qualified medical expenses, you do not pay tax on the distribution but you have to report the distribution on Form 8853. Follow the instructions for the form and attach it to your Form 1040.
• If you take a distribution from your HSA after age 65, for any purpose other than qualified medical expenses, you pay income tax on the distribution.

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5. What is covered?

Following is a partial list of qualified medical expenses that you can include in figuring your medical expense deductions. For a complete list, please see Section # 213 of the IRS Code and IRS Publication # 502.

• Abortion
• Acupuncture
• AlcoholismTreatment
• Ambulance
• Artificial Limb
• Artificial Teeth
• Birth Control Pills
• Braille Books & Magazines
• COBRA Payments
• Capital Expenses
• Chiropractor
• Christian Science Practitioner
• Contact Lenses
• Crutches
• Dental Treatment
• Drug Addiction Treatment
• Eyeglasses
• Fertility Enhancement
• Guide Dog or Other Animal
• Health Institute
• Hearing Aids
• Hospital Service
• Laboratory Fees
• Laser eye surgery
• Lead-Based Paint Removal
• Learning Disability
• Legal Fees (Treatment)
• Lifetime Care-Advanced Payments
• Lodging (Treatment)
• Long-Term Care Insurance
• Meals (Treatment)
• Medical Conferences
• Medical Information Plan
• Medical Services
• Medicines
• Mentally Retarded, Special Home
• Nursing Home
• Nursing Services
• Operations
• Optometrist
• Organ Donors
• Osteopath
• Oxygen
• Prosthesis
• Psychiatric Care
• Psychoanalysis
• Psychologist
• Qualified Long-Term Care Service
• Schools & Education, Special
• Sterilization
• Stop-Smoking Programs
• Surgery
• Telephone
• Television
• Therapy
• Transplants
• Transportation
• Trips (For Treatment)
• Tuition
• Vasectomy
• Weight-Loss Program (Prescribed)
• Wheelchair
• X-Ray Fees

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6. What is excluded?

Following is a list of non-qualified expenses you cannot include in figuring your medical expense deductions. For a complete list, please see Section # 213 of the IRS Code and IRS Publication # 502.

• Baby Sitting, Child Care and Nursing Services for a Normal, Health Baby
• Controlled Substance
• Cosmetic Surgery
• Dancing Lessons
• Diaper Service
• Electrolysis or Hair Removal
• Funeral Expenses
• Hair Transplant
• Health Club Dues
• Household Help
• Illegal Operations and Treatments
• Insurance Premiums for Certain Types of Policies
• Maternity Clothes
• Medicare Premiums
• Medicare Supplemental Insurance
• Nutritional Supplements
• Personal Use Items
• Swimming Lessons
• Weight-Loss Program (If not prescribed)

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7. How to set-up an HSA

Who can be a trustee for a HSA?

A trustee can be a bank, insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements.

Who can contribute to my HSA?

Your employer may decide to make contributions to a HSA for you. You do not pay tax on these contributions. Employer contributions are immediately vested to the employee. If you leave your employer, all of your HSA funds go with you. You can make your own tax free contributions in a year to your HSA but not if your employer has made a contribution in that year.

Death of the HSA Holder

You should choose a beneficiary when you set up your HSA. What happens to that HSA when you die depends on whom you designate as the beneficiary:

Spouse is the designated beneficiary

if your spouse is the designated beneficiary of your HSA, it will be treated as your spouse's HSA after your death.

Spouse is not the designated beneficiary

On the date you die, if someone other than your spouse is the designated beneficiary of your HSA:

• The account stops being an HSA, and
• The fair market value of the HSA becomes taxable to the designated beneficiary.

No designated beneficiary

If you have no beneficiary, the fair market value of the HSA will be included on your final income tax return after your death.

Qualified Medical and Dental Expenses

Whose medical and dental expenses can you include?

• Spouse
• Dependent
• Adopted Child
• Child of Divorced or Separated Parents

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