Information on Kentucky Health Savings Accounts

Health savings accounts were created under the federal "Medicare Prescription Drug Improvement and Modernization Act of 2003," signed into law on December 8, 2003. These accounts were available as of January 4, 2004.

What is a health savings account?

A health savings account is a new way of saving money for health expenses in a tax-free account. The money can either be used to pay for current health expenses or saved for future qualified medical and retiree health expenses.

Am I eligible for a health savings account?

To be eligible:

• You must be covered by a qualified high deductible health plan.
• You cannot be:
  • Covered by other health insurance (excluding specific injury, accident, disability, dental care, vision care and long-term care insurance)
  • Eligible for Medicare
  • Claimed as a dependent on someone else's tax return

What is a high deductible health plan?

A deductible is the amount you must pay before your health plan pays. For 2008, a high deductible health plan has a minimum deductible of

• $1,100 (individual self-only coverage) or
• $2,200 (family coverage)

The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,600 (individual self-only coverage) or $11,200 (family coverage). High deductible health plans can have "first dollar coverage" (no deductible) for preventive care and higher out-of-pocket (co-pays and coinsurance) for non-network services.

How do I get started?

You can sign up for a health savings account with a provider -- generally an insurance company or a bank. Employers may also set up plans for employees.

Who can contribute to a health savings account?

Either you, your employer or both can contribute. The amount you contribute is an "above the line" tax deduction that reduces your taxable income. Employer contributions are not taxable to the employee (excluded from income). Contributions also can be made by others on behalf of an eligible individual and deducted by the individual. All contributions are combined.

How much can I contribute to a health savings account?

The maximum contribution is the lesser of the deductible amount under the high deductible health plan or $2,900 for individuals or $5,800 for family coverage in 2008. These dollar limits will be adjusted for inflation each year.