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I have recently opened a Health Savings Account (HSA) with Bank of America. Do I need to associate it with a health plan? How does that work?

Bank of America has set up a HSA for me to make contributions into. But I do not understand this account's correlation with an actual health plan.

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Do you by chance work for Bank of America, or did you just go to them and open it up? –  Stainsor May 4 '11 at 21:43
    
I have standard accounts with them. –  user3560 May 5 '11 at 2:19
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3 Answers

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See this question regarding the relationship between a HDHP (High Deductible Health Plan) and an HSA (Health Savings Account). In brief, to qualify for an HSA you must have a HDHP:

HDHPs are plans with a minimum deductible of $1,200 for self-only coverage and $2,400 for self-and-family coverage. The maximum amount out-of-pocket limit for HDHPs is $5,950 for self-only coverage and $11,900 for self-and-family coverage.

As mentioned by Stainsor, your insurance can either come from your employer, or it can be an individually purchased plan. The HSA can be bundled as part of a package with the insurance, or it can be an account you set up separately.

Contributions you make to the HSA are tax deductible. You'll report the amount you contributed when you file your taxes the following year. E.g. in April 2012 you'll report (and deduct) the amount of HSA contributions you made for tax year 2011.

I'm not sure what kind of trouble you'll get into if you have an HSA without having a qualified HDHP.


To answer the main part of your question:

Different HSAs may have slightly different features, but I've typically seen them provide the following ways to withdraw funds:

  1. Via a debit card issued with the account. You can use the debit card to pay for things like drugs at the pharmacy, or at a doctors' office that requires payment at the time of service.

  2. Via online bill pay. You can use this to pay bills from hospitals, doctors' offices, or other healthcare service providers that send you bills.

  3. Via paper checks. For doctors' offices that require payment at time of service but don't accept plastic. (Or if you prefer not to use online bill pay.)

  4. Via withdrawal at a teller window or ATM. You can use this to "reimburse yourself" for healthcare expenses that you paid out of pocket.

The issue of documenting legitimate expenses and/or qualifying for the account with an HDHP is between you and the IRS. The bank at which your HSA is kept doesn't really care whether you comply with the tax laws.

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The account doesn't have to be associated with a specific health plan. There are some accounts that work that way. In fact, mine does. But I didn't go to a bank and open it up, it came as a package deal with my employer's health plan. Furthermore I don't contribute to it, the company does. If I wish to contribute my own funds, I have a separate Flexible Spending Account (FSA). This is not tied to my health plan. I can make qualified purchases at Wal Mart, Target, or wherever I choose. Then I can submit the receipts for reimbursement.

In your case it sounds like your HSA works more like my FSA. The relevant question here is 'How do I (you) withdraw funds from the HSA?' There are a few different possibilities. Some accounts have a debit card, some give you checks, some have a reimbursement process similar to my FSA. (Some have more than one option available.)

In your case you should contact Bank of America to determine how to withdraw funds from your account.

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No, but there's an HSA requirement that one must have a high deductible health insurance plan. –  JoeTaxpayer May 4 '11 at 21:56
    
My HSA came with a debit card, and I can make contributions to the account via direct deposit. But I assume it must be tied to a health plan, no? If all I'm doing is withdrawing money from an account to pay for health services, what the hell is the point of this account? How is it different from my checking account? Surely it must be tied to a health insurance plan or this is ludicrous... –  user3560 May 5 '11 at 2:15
    
The difference is you don't pay income tax on the money you put into the HSA. –  Stainsor May 5 '11 at 12:39
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In general you can withdraw money from an HSA by using the debit card that comes with most HSA accounts or writing yourself or your healthcare provider a check drawn on the HSA account. It is important that you keep receipts for any medical expenses that you pay with money from your HSA in case you get audited.

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