More Information on Health Savings Accounts, Medicare and Kentucky Health Insurance

Do health savings account funds roll over year after year and get invested?

Yes, the money invested in a health savings account rolls over year after year.

How is a health savings account different from a medical savings account or a flexible spending account?

Medical savings account - The contribution guidelines for a health savings account are more generous than for a medical savings account. For example, under a medical savings account, either you or your employer can make contributions but both of you cannot do so in the same year.

Flexible spending account - This is a plan established by an employer that allows you to defer pretax earnings into an account. You can withdraw funds to pay medical expenses and/or qualified child-care expenses. There is no roll-over provision. Any unused funds remaining at the end of the year are forfeited.

Who has control over the money invested in a health savings account?

In most cases the individual will have control over the assets. However, some employers are exploring the idea of having control over the investments.

What happens to the money in a health savings account after you reach age 65?

Once you reach 65, the amounts can be used for health expenses and to pay certain insurance premiums like Medicare Part A & B, Medicare HMO and the employee's share of retiree medical insurance premiums. It cannot be used to purchase a Medigap policy. It also can be used for any other expenses. If used for medical expenses, the amounts come out of the account tax-free. If used for other expenses, the amount received will be taxable.

Can the money in a health savings account be rolled over into an IRA?

You cannot roll the funds over into an IRA. The money must remain in the original health savings account or be rolled into another.

What can money from the health savings account be used for?

The amounts can be distributed for either qualified medical or other expenses. If the amount distributed is used for qualified medical expenses, then the distribution is tax-free. Over-the-counter drugs are included. If the amount distributed is used for other than qualified medical expenses, the amount distributed will be taxed and, for individuals who are not disabled or over age 65, subject to a 10 percent tax penalty.

In general the money cannot be used to pay for other health insurance premiums including Medigap coverage.

However, you can use the money for:

• COBRA continuation coverage
• Health plan coverage while receiving unemployment compensation
• Medicare premiums and out-of-pocket expenses (Part A, Part B, Medicare HMOs, new prescription drug coverage)
• Long-term care costs and qualified long-term care insurance