A health savings account (HSA) is a health care account and savings account in one. The main purpose of this account is to offset the cost of a qualifying high deductible health plan (HDHP) and provide savings for your out-of-pocket eligible health care expenses – those you and your tax dependents may have now, in the future, and during your retirement.
This is a “portable” account. You own your HSA! It’s included in your employee benefits package, but after you set up your account, it’s yours to keep, even if you change jobs or retire.
Once your HSA is established, money is contributed to your account by you, your employer, or friends and family, and you can then use your HSA dollars tax-free to pay for eligible health care expenses. You save money on expenses you’re already paying for, like doctors’ office visits, prescription drugs, and much more. Best of all, you decide how and when to use your HSA dollars.
HSAs benefit everyone who is eligible to have this account – single individuals, families, and soon-to-be retirees. You save money on taxes* in three ways:
Setting aside pre-tax dollars into your HSA means you pay fewer taxes and increase your take-home pay by your tax savings. You save money on eligible expenses that you are paying for out of your pocket. The amount you save depends on your tax bracket. For example, if you are in the 30 percent tax bracket, you can save $30 on every $100 spent on eligible health care expenses.
HSA funds roll over from year to year and accumulate in your account. There is no “use-it-or-lose-it” rule with HSAs, and you decide how and when to use your HSA funds, which can be used for eligible expenses you have now, in the future, or during retirement. And when you have a certain balance in your HSA, investment opportunities are available.
IRS guidelines govern HSA eligibility, and not everyone can set up an HSA. You must meet all of the following requirements before you can open an HSA and contribute to it each month:
You continue to maintain your HSA eligibility each month that you meet the conditions listed above on the first day of the month. Plus, it’s up to you to decide if you meet these eligibility requirements. This is also important to know when making HSA contributions.
This is a health plan that has a high annual deductible that doesn’t cover the initial costs or all of your out-of-pocket medical costs. The deductible forces you to pay for the first portion of a medical expense before insurance kicks in. The minimum deductible for an HDHP can vary each year and can vary depending on if you have self-only or family coverage. Each year, the IRS sets the annual minimum deductible amount.
IRS rules only allow you to have certain types of insurance coverage, including:
You can, but it has to be a limited-purpose health FSA that only allows funds to be used for qualified vision and dental expenses. That’s because IRS rules state that you cannot have both an HSA and general-purpose health FSA since both apply funds toward your medical expenses. A limited-purpose FSA allows you to set up and contribute to an HSA. You maximize your savings and tax benefits by restricting your FSA reimbursement to only eligible vision and dental expenses.
You must spend all of your funds and have a zero balance in your health FSA before you can enroll in an HSA. For example, let’s say your FSA plan ends on December 31. You must use all FSA funds by this date so you can establish an HSA on January 1 the following year. Don’t carry over FSA funds into the following plan year. If you do not have a zero balance at the end of the FSA plan year, you will have to wait until April 1 to establish your HSA.
You don’t need permission from the IRS to establish an HSA. If you meet the eligibility requirements listed above, you may open an HSA when you are informed by your employer. Our enrollment process is done through your CONEXIS online account, and you will be provided with various important documents and terms and conditions during that process. You must carefully read all documents given to you.
When you establish an HSA, UMB Bank, n.a. will be the custodian for your account. UMB will open an interest-bearing custodial Deposit Account in your name. All HSA contributions will be deposited into this account.
An HSA is an individually owned account; however, eligible health care expenses of an HSA account holder, their spouse, and qualifying tax dependents can be reimbursed from the HSA. While spouses cannot create a joint account, each spouse may have their own HSA.
Review your benefits materials to see if your employer allows you to set up payroll contributions. If so, your pre-tax contributions will be taken from your paycheck and deposited into your HSA based on a schedule created by your employer. You can also make additional contributions at any time, up to the annual maximum limit.
Making additional contributions is easy to do. You can transfer money from your personal banking account into your HSA through your CONEXIS online account, or you can mail a check directly to UMB Bank.
Please Note: To continue to make HSA contributions, you must maintain the eligibility requirements listed above. If you lose your eligibility, you just can’t add any more money to the account, but you can still use your HSA funds at any time. Withdrawals for eligible expenses are always tax-free.
Yes, your HSA Deposit Account is an interest-bearing account. You begin accruing interest on day one, and the interest is paid each month. Investment opportunities are available when you have a certain balance in your account, known as a “peg balance.”
HSA account holders who are age 55 or older at the end of the tax year may make catch-up contributions. Currently, the IRS allows these individuals to make additional contributions up to $1,000 over the annual limit.
Contributions that are greater than the annual limit (known as “excess contributions”) can be taxed. Currently, these excess amounts are subject to a 6 percent excise tax. The tax may be waived if the excess contributions (and if applicable, net earnings) are returned to the account holder before the last day for filing their tax return. For more details, please talk to your tax advisor.
Yes, the IRS allows HSA account holders a one-time rollover to transfer funds from an IRA to an HSA. These funds must be included in the total contributions amount and can’t exceed the annual limit. This withdrawal is tax-free as long as the money is used to cover eligible medical expenses.
In addition, you must remain HSA eligible for 12 consecutive months, starting with the month the rollover occurred, or you must pay a 10 percent penalty and taxes. The only exception to this is disability or death.
No, but there are certain IRS rules that apply to eligible individuals who are married and whose spouses have HSAs. Internal Revenue Code Section 223 states that if either spouse has qualifying HDHP family coverage, then both spouses are treated as having only that family coverage. The HSA contribution is a joint limit and is divided equally between you and your spouse – unless you agree on a different division of the funds – up to the annual maximum limit.
This applies even if one spouse has family coverage under a qualifying HDHP and the other spouse has qualifying HDHP individual coverage. Keep in mind that if either spouse has family coverage under a non-HDHP that covers both spouses, such as an HMO or a general-purpose health FSA or HRA, then both individuals are ineligible for an HSA.
For further guidance, please talk to your tax advisor.
You can begin using your HSA dollars when funds are available in your account. Withdrawals of HSA funds to pay for eligible expenses are known as “distributions.” Keep in mind that it is your responsibility to decide how your HSA dollars are spent and when to use your HSA funds.
You can only use HSA dollars toward eligible expenses – those you pay for out of your pocket for medical care that’s provided to you, your spouse, and eligible tax dependents. IRS rules govern expense eligibility, and generally, these rules state that medical care includes items and services that are meant to diagnose, cure, mitigate, treat, or prevent illness or disease. Transportation that is primarily for medical care is also included. Here are some other examples:
Keep in mind that there’s no double-dipping. Expenses reimbursed under your HSA cannot be reimbursed under any other plan or program. Only your out-of-pocket health care expenses are eligible for reimbursement. Plus, expenses reimbursed under an HSA can’t be deducted when you file your tax return.
Yes, but they require a written or electronic prescription to be an eligible HSA expense. IRS rules state that over-the-counter (OTC) medicines and drugs are only eligible for reimbursement under your HSA if prescribed by a doctor (or another person who can issue a prescription) in the state where you purchase the OTC medicines. If your doctor suggests an OTC medicine, just ask for a prescription. These rules do not apply to insulin (including OTC insulin).
Here are some of the many examples of OTC medicines and drugs requiring a prescription:
You can use your CONEXIS Benefit Card to purchase OTC medicines only if you present a doctor’s prescription for an OTC medicine to a pharmacist. The pharmacist will then dispense the medicine just like a traditional prescription and assign an Rx number. If you cannot give the pharmacist an OTC prescription before paying for the OTC medicine, you must purchase the medicine out of your pocket and then reimburse yourself from your HSA.
In case you are audited by the IRS, retain one of these documents:
Many OTC health care-related items are eligible under your HSA, such as:
Expenses that are not approved are called “ineligible expenses.” Ineligible HSA expenses include:
It’s a stored-value card that makes it easy to pay for eligible health care expenses. This card lets you electronically access your account funds, and you can use your benefit card at qualifying health care providers and merchants where Visa is accepted. As you incur eligible health care expenses, just present your benefit card for credit payment. The amount of purchase is deducted automatically from your HSA, and the funds are transferred electronically to the provider or merchant for instant payment. The card system will confirm your account status, the status of your benefit card, the merchant category code, and the funds that are in your account.
We will mail a cardholder agreement along with your benefit card. Carefully read the cardholder agreement and the back of your CONEXIS Elite Benefit Card. By signing your card, you agree to follow the terms and conditions of the cardholder agreement. You further certify that you will use your benefit card to pay for qualified medical expenses only and will not seek reimbursement under any other health plan. Each time you use your benefit card, you confirm that you will follow the cardholder agreement rules.
When you receive your benefit card in the mail, just call the toll-free number on the sticker attached to the front of the card, and then follow the prompts. Once activated, sign the back of your benefit card and it’s ready to use.
Learn more about your benefit card on our HSA Benefit Card page.
You may use your card at health care providers that have health care-related merchant category codes, which help identify the type of merchant where you use your card and determines if it can be used at that location. These include doctors, dentists, vision care offices, hospitals, and other medical care providers. You can also use your card at grocery stores, discount stores, and pharmacies that utilize an Inventory Information Approval System (IIAS), which is a point-of-sale system that compares the items you purchase against a list of eligible items maintained by the merchant.
When using your benefit card at an IIAS merchant, you may only use your benefit card to pay for those items identified on the merchant’s list of eligible expenses. When you purchase eligible health care-related items AND ineligible, non-health care-related items, the merchant will only accept your benefit card to pay for the health care-related items. You must pay for the ineligible items with another form of payment (cash, personal credit card, debit card, etc.).
At times, purchases made at IIAS merchants may fail to process correctly. If this happens, pay for the expense out of your pocket and then reimburse yourself from your HSA.
Please Note: You can’t use your CONEXIS Elite Benefit Card at any merchant that doesn’t have a health care-related merchant category code unless that merchant utilizes an IIAS. Pharmacies, grocery stores, and discount stores will not qualify as merchants with a health care-related merchant category code. If a vendor does not appear on the IIAS list, ask them if they use an IIAS before using your card. When making a purchase from a vendor that doesn’t use an IIAS, pay for the expense out of your pocket and then reimburse yourself with HSA funds.
That depends on how you want to use your benefit card. To use like a credit card, simply swipe your card and select “credit” when checking out. If using the debit option, you must enter a PIN.
Please Note: Not all merchants and health care providers will allow you to use the debit option. If you select “debit” and enter your PIN, but your card is denied, please try again. Swipe your card and choose the “credit” option to pay for your purchase.
No, there is no “cash back” option with your benefit card.
When using your benefit card at an IIAS merchant, your card may be used to pay for only those items identified on a list of eligible expenses maintained by the merchant. You don’t have to worry about which expenses qualify or splitting up your purchase – the IIAS process will do that for you.
Example: You go to an IIAS-participating grocery store with a pharmacy to get a traditional prescription filled and you also want to submit a doctor’s prescription for aspirin. Simply provide both prescriptions to the pharmacist before making your purchase. While you’re at the store, you also pick up bandages, gauze, and hand sanitizer. Your benefit card can be used to pay for the eligible expenses – the prescription and aspirin that was issued as a prescription, bandages, and gauze. However, hand sanitizer is an ineligible expense so you will need to pay for it using another form of payment (cash, credit or debit card, etc.).
If you use your benefit card to pay a vision or dental provider, your limited-purpose FSA funds will cover the eligible expense. If you prefer to use HSA funds toward the eligible vision or dental expense, pay for it out of your pocket and then reimburse yourself from your HSA.
Please Note: If you use your card to purchase an OTC health care-related item like contact solution, HSA funds will cover the expense. The merchant’s IIAS will not be able to distinguish eligible vision or dental-related expenses. If you prefer to use your limited-purpose FSA funds toward an eligible vision or dental OTC expense, pay for it with another form of payment (cash, credit card, etc.) and then submit an FSA reimbursement request along with your itemized receipt.
If your benefit card is declined, you may pay for the expense out of your pocket and reimburse yourself with HSA funds. There are several reasons your benefit card may be declined, including not enough money in your account to cover the purchase or the merchant was ineligible. Find out why your card purchase was denied by logging in to your online account.
You will have to pay taxes on the ineligible expense, and if you are under age 65, you must pay a 20 percent penalty.
At age 65 or older, you may use your HSA funds to pay for anything you want without being penalized. You only have to pay taxes on ineligible items purchased with HSA funds.
No, you may only use HSA dollars toward eligible expenses incurred after your HSA has been established. Once you have your HSA set up, you may reimburse yourself for out-of-pocket medical expenses at any time if funds are available in your account.
No, there’s no paperwork to submit. However, you must save all itemized receipts and other supporting documentation for every HSA expense. If you are audited by the IRS, you will need to prove that your HSA dollars were used toward eligible medical expenses. Appropriate documentation includes:
Your HSA information is available anytime day or night by logging it to your online account.
No. Your CONEXIS Elite Benefit Card is valid for three years from the issue date.
Each year, UMB will send you – and the IRS – forms showing the total contributions and distributions made during the tax year. These are the forms associated with an HSA:
If you stop working for your employer, you will continue to own your HSA and will not lose the money in your account. However, your pre-tax contributions will end automatically, and you will no longer be able to use your CONEXIS Benefit Card or access your HSA through your CONEXIS online account.
When you leave your current employer, UMB Bank will take over as the HSA administrator. You will receive a new UMB benefit card and information on how to access your HSA through the UMB website.
If part of your divorce decree or separation agreement, the transfer of your HSA to your spouse is not considered a taxable transfer. After the transfer, the former spouse is treated as the HSA account holder (if approved by UMB). You or your former spouse must request the transfer to the spouse’s name and perform other actions required by UMB in the HSA Custodial Agreement or as required by law.
At age 65, you can continue to use your HSA funds to pay for eligible expenses, and you can use funds to cover other expenses that you may have during retirement without paying the 20 percent penalty. If you use HSA dollars toward ineligible expenses, you must pay taxes on the amount withdrawn from your HSA.
Please Note: When entitled to Medicare, you can no longer make HSA contributions. However, you are free to use your HSA funds that you have grown over time.
At any time, you can designate one or more HSA beneficiaries who will inherit your HSA if you pass away. Log into your online account to find the form.
If you do not designate a beneficiary, UMB will distribute the HSA assets to your estate when you die. In addition, certain states may require a spouse’s consent to name or change an HSA beneficiary. Please consult your attorney before selecting a beneficiary.
The CONEXIS Elite Benefit Card is issued by UMB Bank, n.a., pursuant to a license from Visa U.S.A. Inc.
*HSA contributions are deducted before federal and most state taxes. Savings vary depending on your tax bracket. Check with your tax advisor for details regarding your state taxes and your tax savings.