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Gary L. Whiddon, CFP
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Health Savings Accounts (HSA)

Saving Tax Dollars for Employees & Employers

What is an HSA?

The concept of Health Savings Accounts combines an affordable qualified High Deductible Health Plan (HDHP) and a tax-favored health savings account (HSA). The combination results in savings through lower health care premiums and a reduction in taxable income. The HSA grows tax-deferred, and if you use your HSA funds for eligible medical expenses, you never have to pay taxes on those funds! With HSAs, YOU control your health care decisions.

Why Employers Should Offer HSAs
Offering an HSA as part of your employee benefits package gives your employees the ability to take control of their health care costs, lower their premiums and take advantage of unique tax benefits. It also offers several benefits to you as an employer.

Lower Health Care Premiums

Health care premiums are on the rise; that’s no secret. However, Health Savings Accounts may provide more affordable premiums while providing your employees with an attractive employee benefits plan. HSAs combine a high deductible health plan with a tax favored health savings account, which is used to help pay expenses towards the deductible.  Have your employees compare their current plan cost with a health savings account approach by using our Online Calculator.  When comparing, remember that any amount invested in your HSA should not be considered an "expense" since you keep all unused funds. Over the life of your Health Savings Account, you could save thousands of dollars.  Use our HSA Growth Calculator to calculate how your HSA will grow based on your expected health care costs.

Less Administrative Responsibility

Unlike other health care financing options, you are not responsible or liable for your employee’s account once it is opened. You do not have a claims administration or adjudication process and do not have to maintain records for the IRS. However, our preferred vendor, HSA Bank, has knowledgeable, dedicated Client Assistance staff who are available to assist your employees with any questions.

Eligible HSA Medical Expenses

Eligible medical expenses are defined as those expenses paid for care as described in Section 213(d) of the Internal Revenue Code. Additionally, the IRS has allowed some over-the-counter drugs to qualify as eligible medical expenses. ¹

The following lists may help you determine whether an expense is eligible or not. These lists are provided with the understanding that and our affiliated companied are not engaged in rendering tax advice. These lists are to serve as a quick reference. For more detailed information, please refer to IRS Publication 502 or contact a tax professional.

Eligible Medical Expenses (For HSA Distributions)
  • Abdominal supports
  • Abortion
  • Acupuncture
  • Air conditioner (when necessary for relief from difficulty in breathing)
  • Alcoholism treatment
  • Ambulance
  • Anesthetist
  • Arch supports
  • Artificial limbs
  • Autoette (when used for relief of sickness/disability)
  • Birth Control Pills (by prescription)
  • Blood Tests
  • Blood transfusions
  • Braces
  • Cardiographs
  • Chiropractor
  • Christian Science Practitioner
  • Contact Lenses
  • Contraceptive devices (by prescription)
  • Convalescent home (for medical treatment only)
  • Crutches
  • Dental Treatment
  • Dental X-rays
  • Dentures
  • Dermatologist
  • Diagnostic fees
  • Diathermy
  • Drug addiction therapy
  • Drugs (prescription)
  • Elastic hosiery (prescription)
  • Eyeglasses
  • Fees paid to health institute prescribed by a doctor
  • FICA and FUTA tax paid for medical care service
  • Fluoridation unit
  • Guide dog
  • Gum treatment
  • Gynecologist
  • Healing services
  • Hearing aids and batteries
  • Hospital bills
  • Hydrotherapy
  • Insulin treatment
  • Lab tests
  • Lead paint removal
  • Legal fees
  • Lodging (away from home for outpatient care)
  • Metabolism tests
  • Neurologist
  • Nursing (including board and meals)
  • Obstetrician
  • Operating room costs
  • Ophthalmologist
  • Optician
  • Optometrist
  • Oral surgery
  • Organ transplant (including donor's expenses)
  • Orthopedic shoes
  • Orthopedist
  • Osteopath
  • Oxygen and oxygen equipment
  • Pediatrician
  • Physician
  • Physiotherapist
  • Podiatrist
  • Postnatal treatments
  • Practical nurse for medical services
  • Prenatal care
  • Prescription medicines
  • Psychiatrist
  • Psychoanalyst
  • Psychologist
  • Psychotherapy
  • Radium Therapy
  • Registered nurse
  • Special school costs for the handicapped
  • Spinal fluid test
  • Splints
  • Sterilization
  • Surgeon
  • Telephone or TV equipment to assist the hard-of-hearing
  • Therapy equipment
  • Transportation expenses (relative to health care)
  • Ultra-violet ray treatment
  • Vaccines
  • Vasectomy
  • Wheelchair
  • X-rays
Eligible Over-the-Counter Drugs (For HSA Distributions prior to 2011)
  • Antacids
  • Allergy Medications
  • Pain Relievers
  • Cold medicine
  • Anti-diarrhea medicine
  • Cough drops and throat lozenges
  • Sinus medications and nasal sprays
  • Nicotine medications and nasal sprays
  • Pedialyte
  • First aid creams
  • Calamine lotion
  • Wart removal medication
  • Antibiotic ointments
  • Suppositories and creams for hemorrhoids
  • Sleep aids
  • Motion sickness pills
Ineligible Medical Expenses
  • Advancement payment for services to be rendered next year
  • Athletic club membership
  • Automobile insurance premium allocable to medical coverage
  • Boarding school fees
  • Bottled water
  • Commuting expenses of a disabled person
  • Cosmetic surgery and procedures
  • Cosmetics, hygiene products and similar items
  • Funeral, cremation, or burial expenses
  • Health programs offered by resort hotels, health clubs, and gyms
  • Illegal operations and treatments
  • Illegally procured drugs
  • Maternity clothes
  • Non-prescription medication
  • Premiums for life insurance, income protection, disability, loss of limbs, sight or similar benefits
  • Scientology counseling
  • Social activities
  • Special foods and beverages
  • Specially designed car for the handicapped other than an autoette or special equipment
  • Stop-smoking programs
  • Swimming pool
  • Travel for general health improvement
  • Tuition and travel expenses a problem child to a particular school
  • Weight loss programs
Health Insurance may not be purchased with HSA Funds. There are 3 situations which are exceptions whereby HSA funds can be used to pay for:

1) A health plan during any period of continuation coverage required under any Federal law
2) A qualified long-term care insurance contract
3) A health plan during a period in which the individual is receiving unemployment compensation under any Federal or State Law

¹ Revenue Ruling 2003-102, 2003-38 I.R.B. 559

Miscellaneous Links

Internal Revenue Service (IRS) Forms

** Please note that there may be more recent versions of the forms below.  Please contact your accountant for confirmation on which forms to complete

  1. IRS Form 1040 — HSA deduction on Line 25
  2. IRS Form 8889 — HSA Instructions
  3. IRS 2007 Proposed Reg. Regarding Employer Comparability — IRS Proposed Regulations Regarding Employers Contributions to the HSAs of its Employees.
  4. IRS Form 5498-SA Contribution Report
  5. IRS Form 1099-SA Distribution Report
  6. Instructions to 1099-SA and 5498-SA
  7. Instructions to IRS Form 8889
  8. IRS Publication 502 Medical and Dental Expenses. — IRS guidelines on qualified medical expenses.
  9. IRS Publication 969 HSAs and Other Tax-Favored Health Plans. — IRS high level overview of health savings accounts.
  10. IRS Notice 2004-2 — early IRS guidance on health savings accounts.
  11. IRS Notice 2004-23 — safe harbor guidelines for preventative care that may be provided by an HDHP without satisfying the minimum deductible requirements.
  12. IRS Notice 2004-50 — additional IRS guidance on health savings accounts.
  13. IRS Notice 2005-8 — IRS guidance on a partnership’s contributions to a partner’s HSA and an S-corporation’s contribution to a 2-percent shareholder employee’s HSA.
  14. IRS Notice 2005-86 — IRS guidelines regarding eligibility for a health savings account during a cafeteria plan grace period.
  15. IRS Notice 2007-22 — IRS Guidance on rollovers of FSA and HRAs to HSAs.
  16. IRS Revenue Ruling 2005-25 — clarification on spousal eligibility for an HSA when other spouse has nonqualifying family coverage.
  17. IRS Revenue Ruling 2004-45 — interaction between HSAs and other health arrangements (FSA as “other health plan”).
  18. IRS Notice 2008-51 — IRA to HSA Direct Transfer Rules.
  19. IRS Notice 2008-52 — Testing Period Rules.
  20. IRS Notice 2008-59 — General HSA Guidance.
  21. IRS Form 5329 — Use this form to pay a penalty tax on excess contributions to an HSA.
  22. IRS Form 5329 Instructions

Health Savings Account - Banks

There are a variety of banks that want your business. We have found that HSA Bank offers great 800 number support, low fees, and easy administration with their online capabilities.

HSA Bank

HSA Bank is a Milwaukee-based company and one of the nation’s leading Health Savings Account (HSA) administrators.  They serve more than 250,000 accountholders with nearly three quarters of a billion dollars in HSA assets.   HSA Bank focuses solely on the administration, service and support of their HSA product.

Toll Free - (800) 357-6246
Toll Free Spanish Representative - (866) 357-6232
Toll Free Fax Number - (877) 851-5274
Phone Hours: Monday through Friday, 7 A.M. to 9 P.M. CST

605 North 8th Street, Suite 320
Sheboygan, Wisconsin 53081

Sterling HSA

Sterling HSA is a strategic partner with Warner Pacific for health savings accounts. The professionals at Sterling are experts in the health benefits industry whose primary focus is putting employers and consumers in control of their health care spending. Sterling can provide administrative functions for any HSA compatible plan for any carrier.

Toll Free Phone: (800) 617-4729
475 14th Street, Suite 120

Oakland, CA 94612

Aetna HealthFund Health Savings Account
Attention: HSA Enrollment
151 Farmington Ave.
Hartford, CT 06156-8961
JPMorgan Chase Health Savings Account - Anthem Blue Cross
Anthem Blue Cross
Attention: HSA Enrollment
2000 Corporate Center Drive
Newbury Park, CA 91320
Mellon Bank - Anthem Blue Cross (Lumenos plans only)
Anthem Blue Cross
Attention: HSA Enrollment
2000 Corporate Center Drive
Newbury Park, CA 91320
The HSA for Life® Health Savings Account from Bank of America. - Health Net
Bank of America Health Savings Account
P.O. Box 69338
Harrisburg, PA 17106-9338

Mellon Financial HSA  - PacifiCare
5701 Katella Avenue, Mail stop: CY24-212
Cypress, CA 90630
Wells Fargo  - Kaiser
Wells Fargo Health Benefit Services
NW 5613 P.O. Box 1450
Minneapolis, MN 55485
Phone: (866) 890-8308