What is a Health Savings Account?

A Health Savings Account is an individually owned tax-exempt account established exclusively for the purpose of paying for qualified medical expenses. An HSA, by nature, is a trust account. HSAs can be funded through a pre-tax salary deduction through a 125 Cafeteria Plan or on an after-tax basis by you, your employer, or both.

EBC has partnered with Cambridge State Bank in order to provide you with a competitive interest bearing HSA account. For more information on Cambridge State Bank's Health Savings Account, including fees and interest earnings, visit the Cambridge State Bank website.
For more detailed information on HSA plans and taxes, visit the U.S. Department of Treasury website (type "HSA" in the search field), or talk with your tax advisor.

If your insurance is a High Deductible Health Plan (HDHP) that meets these deductible and out of pocket criteria then you may be eligible to make contributions to a tax-free HSA.

Minimum Deductible
2017 2018
Single $1,300 $1,350
Family $2,600 $2,700
Maximum Out-of-Pocket
2017 2018
Single $6,550 $6,650
Family $13,100 $13,300

See the Eligibility Checklist (pdf) and also check with your insurance provider to be certain.

To open an HSA you must be enrolled in a High Deductible Health Plan (HDHP). Your insurance provider can verify whether you have such a plan.

You cannot contribute to your HSA if you are enrolled in Medicare Part A or B. Nor can you contribute to your HSA if you are covered by any other health plan.

You may be covered by any one of the following types of insurance without making yourself ineligible to contribute to your HSA. These are:

  • Accident
  • Disability
  • Vision
  • Dental
  • Cancer Insurance
  • Limited Use or Post-Deductible Health Flexible Spending Account or Health Reimbursement Arrangement.

Distributions may be used for qualified medical expenses such as medical services, including dental and vision care, hospital costs, prescription drugs, over-the-counter drugs and long-term care insurance.

Once enrolled in Medicare, a person can no longer make contributions to an HSA, but may continue taking tax-free distributions for medical expenses and taxable distributions for non-medical expenses.

Individuals with a HDHP and an HSA may still participate in the employer-sponsored 125 Flex Plan offered through EBC. You may continue to Flex for your dependent/daycare expenses and your outside health insurance. You may also continue to Flex for some of your medical out-of-pocket expenses through a Limited-Use Medical Flexible Spending Account as long as your employer amends your Flex Plan to include that option.

If account owner dies and the HSA passes to a non-dependent beneficiary it ceases to be an HSA as of the date of death. The designated beneficiary or the estate must pay taxes on account.

You cannot designate a personal checking account as your HSA. An HSA is a trust and you must work with a trustee who manages the account in accordance with IRS guidelines and regulations. You may choose your own trustee, even if your employer or health plan directs funds to a trustee of their choice. Banks and credit unions are automatically approved as HSA trustees.

Proper Coordination of an HSA and a Medical Flexible Spending Account Established Through a 125 Cafeteria Plan.

Prior to 2007 contribution limits were prorated based on the number of months you were eligible to contribute to an HSA. The IRS amended its rules and a full year's contribution is allowed as long as the individual is eligible during the last month of the taxable year. However, you must remain eligible for the next twelve months to retain tax-free status of contributions.