An “HSA eligible individual” means, with respect to any month, any individual who is:

·     covered under a high-deductible health plan (HDHP) on the first day of the  month;

·     not covered under any non-HDHP (with certain exceptions for plans providing limited types of coverage);

·     not entitled to Medicare (generally, not yet reached age 65); and

·     not claimed as a dependent on another person’s tax return.

A qualifying HDHP is a plan that meets the following requirements for 2008:

·     For individual coverage, it has an annual deductible of at least $1,100

      and annual out-of-pocket expenses not exceeding $5,600.

·     For family coverage, it has an annual deductible of at least $2,200 and

      annual out-of-pocket expenses not exceeding $11,200.

Generally, disqualifying non-HDHP coverage includes any plan that provides medical care prior to a $1,100/$2,200 deductible being met.3 For example, general HRA and health FSA coverage would disqualify an otherwise HSA eligible individual. However, certain exceptions exist if the plan documents are amended accordingly:

·     Limited-Purpose Health FSA or HRA (allowing reimbursement of dental, vision and

preventive care services);

·     Post-Deductible Health FSA or HRA (allowing reimbursement of expenses incurred

after the HDHP’s deductible has been met);

·     Suspended HRA (where an employee elects prior to the beginning of the plan year to

“suspend” all reimbursement options for that year); or

·     Retirement HRA (only allowing reimbursement of expenses post-retirement).

The 2008 maximum annual contribution to an HSA is:

·     $2,900 for those with self-only HDHP coverage;

·     $5,800 for those with family HDHP coverage; and

·     Catch up contribution for individuals (and their spouses covered under the HDHP)

between ages 55 and 65 is $900 in calendar year 2008 (and increases in $100

increments annually until it reaches $1,000 in calendar year 2009).

Also, certain taxes and penalties may be imposed on employees and employers who do not follow the rules:

·     Distribution for non-medical expense – taxed plus 10 percent penalty tax

·     Overfunding of an HSA – 6 percent excise tax on excess contributions (unless removed within a certain time period)

·     Failure to make comparable contributions – 35 percent excise tax to employer of the aggregate amount contributed by the employer to HSAs for that period (except in the case of distributions made after the account beneficiary’s death, disability, or attaining age 65)