Although over 10 million Americans are now covered by a high deductible HSA qualified plan, many of them have yet to set up a Health Savings Account (HSA).  Certainly, it is not a requirement to ever set up an HSA but failure to do so could end up costing some very significant tax savings.  Here's why.  IRS publication 969  specifically states, "You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA."

The IRS doesn't say you have to have money in your HSA in order to receive tax free distributions, it just says that you have to have the account set up.   Let's consider a person who buys a qualified $2,500 deductible health plan in order to reduce his health insurance premiums but can't afford to put money aside into an HSA so he decides to not bother opening one up.   If he is hospitalized he will be responsible for his deductible amount and the insurance company will pay the remainder, but if he had set up an HSA before he was hospitalized that $2,500 would have been 100% tax deductible.   You might be thinking thats great hindsight, but if he didn't have extra $2,500 beforehand there was nothing he could have done.  Therin is the beauty of the HSA law.   All he would have had to have done is "establish the HSA," which could have been accomplished with a small deposit.  Then when the bill was due he could deposit the money into the account and draw it out again to make the full amount eligible for a 100% tax deduction.  He could even pay the bill with a credit card and run money through the account to reimburse himself at a later time and still be eligible for the deduction.

Health Savings Accounts can be established at many banks so shop around.   Find one that has no setup fees, no monthly deposit requirements and no minimum balance so you can open it with a small deposit and possibly add other amounts later.   Generally there will be minimal monthly fees in the range of $2-$3 (often waived when your balance reaches a couple of thousand) but a deposit of $30 or so should have that covered for a year or more.  There is a niche bank that specializes in HSAs called HSABank  that also provides some good general information and is well worth a visit.


Contact Ronald Haines at ronald@hcibenefits.com