This article is a section taken from MA for People Who Are Age 65 or Older or People Who Are Blind or Have a Disability (MA-ABD), a part of the revisions and additions to the Minnesota Health Care Program Eligibility Policy Manual.

Health Savings Accounts

A Health Savings Account (HSA) is a tax-exempt trust or custodial account used to pay for the qualified medical expenses of the account beneficiary, spouse, or dependents. HSAs are set up with qualified trustees, which can be banks, insurance companies or any entity already approved by the IRS to be a trustee of individual retirement arrangements.

Availability of Health Savings Accounts

Generally, HSAs are considered available because people may use the funds to pay for expenses unrelated to their medical needs. However, some HSAs are considered excluded assets.

Exception to counting HSAs as an available asset

When access to the HSA funds is restricted, the HSA is considered an excluded asset. The trustee of an HSA may restrict access to the account to pay only for qualified medical expenses. The account terms must be verified to determine if the account is legally restricted from uses other than qualified medical expenses.

Determining the Value of an Available Health Savings Accounts

The value of an HSA is the balance in the account available for withdrawal. In rare cases, there may be a penalty for early withdrawal from an HSA. If a penalty exists, the amount of the early withdrawal penalty prior to determining the resource value is deducted. Tax penalties are not deducted prior to determining the resource value of an HSA.

Identifying HSAs

General criteria for identifying HSAs include the following:

  • HSAs require people to have coverage under a high deductible health plan (HDHP). Besides an HDHP plan, people could have separate coverage for dental or vision care or coverage:
    • Specifically designed for a certain disease
    • For hospitalization at a fixed amount per day
    • For liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property
  • A person cannot have an HSA and enroll in Medicare.
  • Contributions remain in the HSA from year to year until depleted.
  • HSA distributions may be tax free if used to pay for qualified medical expenses.
  • HSAs are portable. Portable means that if a person changes jobs or leaves the workforce, he or she has the option to keep the HSA.

Contributions to HSAs

Contributions to an HSA must be in cash. Contributions of stock or property are not allowed.

  • Who may contribute to an HSA:
    • An eligible person, employer, or both can contribute to an HSA in the same year
    • Self-employed (or unemployed) people, their family members, or any other person may contribute to an HSA
  • Limits on the amount of contribution to an HSA depends on the:
    • Type of HDHP coverage
    • Person’s age the date of HSA eligibility
    • Date the person ceases to be eligible for the HSA

The amounts also vary per year. For example in 2016, for self-only plans, the contribution limit was $3,350. For more information on the contribution limits to HSAs, refer to the IRS website.

Distributions from an HSA

Distributions from an HSA are not income. An HSA distribution is a conversion of an asset. HSA trustees report distributions on the Form 1099-SA (Distributions from an HSA).

Balance in an HSA

Unused amounts that remain at the end of the year in an HSA are generally carried over to the next year.

Legal Citations

Minnesota Statutes, section 256B.056, subdivision 1a

CREDIT: The content of this post has been copied or adopted from the Minnesota Healthcare Programs Eligibility Policy Manual, originally published by the Minnesota Department of Human Services.

This is also part of a series of posts on Minnesota Healthcare Eligibility Policies.