What Is an HSA?

Small business owners who want to provide health insurance for themselves, their families and their employees have a new program to help. The Health Savings Account, signed into law by President George W. Bush in December 2003, offers small business owners and employees what they need from health coverage: affordability, portability and freedom.

HSAs can save small business owners up to 40 percent in health care costs. Some small business owners who previously couldn't offer health care to their employees can do so now through HSAs. Small business owners switching to HSAs from other, traditional health coverage plans can save money to buy new equipment and grow their businesses.

The U.S. Small Business Administration -- your small business resource -- provides tools and services to help small businesses succeed. The SBA offers the following questions and answers to help small business owners learn more about HSAs.

What is a Health Savings Account?

An HSA is a tax-free savings account that allows individuals to save their own money to pay for current health expenses and save for future qualifi ed medical and retiree health expenses on a tax-free basis.

Can small business owners offer HSAs to their employees?

Yes. Employers can set up plans for employees with providers, which generally will be insurance companies and banks.

Who is eligible for an HSA?

To be eligible for an HSA, an individual must be covered by a High Deductible Health Plan, must not be covered by other health insurance (does not apply to specifi c-injury insurance and accident, disability, dental care, vision care, longterm care), must not be eligible for Medicare, and can't be claimed as a dependent on someone else's tax return.

What Is a "High Deductible Health Plan"?

An HDHP is a health insurance plan with minimum deductible of $1,000 (self-only coverage) or $2,000 (family coverage). The annual out-ofpocket (including deductibles and co-pays) cannot exceed $5,000 (self-only coverage) or $10,000 (family coverage). HDHPs can have fi rst-dollar coverage (no deductible) for preventive care and higher out-of-pocket (copays & coinsurance) for non-network services.

Can small business owners contribute to an HSA?

Yes. Contributions to HSAs can be made by either the employer or the employee, or both. Contributions by the individual employee are "above-the-line" deductions. Those by the employer are not taxable to the employee (excluded from income). Contributions may also be made by others on behalf of an eligible individual and deducted by the individual. All contributions are aggregated.