Scottsdale's basic healthcare plan will include an optional Health Savings Account (HSA) that will allow employees to use pre-tax dollars to pay medical expenses. This HSA will rollover from year to year, and is portable if the employee leaves the organization.

Health Savings Accounts (HSAs) are considered "consumer-driven" health plans. They combine a less expensive, qualified high deductible health plan with a tax advantaged savings account that allows you to save and pay for routine medical, dental and vision expenses with pre-tax dollars. Additionally, you can save the money for retirement to pay for medicare premiums and other IRS qualified medical expenses.

Visit HSA Central Bank

A health savings account (HSA) is a tax-favored savings account created for the purpose of paying medical expenses.

• Tax-deductible - Contributions to the HSA are 100% deductible (up to the legal limit) — just like an IRA.
• Tax-free - Withdrawals to pay qualified medical expenses are never taxed.
• Tax-deferred - Interest earnings accumulate tax-deferred, and if used to pay qualified medical expenses, are tax-free.
• HSA money is yours to keep - Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow, tax-deferred.

In order to qualify you must meet the following conditions:

1. Covered by an IRS qualified high deductible health insurance plan; The City's HSA Choice Plan qualifies.
2. Not covered under other health insurance;
3. Not enrolled in Medicare; and
4. Not another person's dependent.

Exceptions

Other health insurance does not include coverage for the following: accidents, dental care, disability, long-term care, and vision care. Workers’ compensation, specified disease, and fixed indemnity coverage is permitted.

Federal law sets annual contribution limits at $4,150 for singles and $8,300 for families for 2024. Individuals aged 55 and older can contribute an additional $1,000 each year.

For the fiscal year 24/25, the city will contribute $500 for single coverage and $1,000 for family coverage. This means employees with single coverage can contribute an additional $3,650 and those with family coverage can contribute an additional $7,300 to reach the federal limits.

Changing Your Contribution Amount

To change your HSA contribution amount, you must report your request on the Munis Employee Self Service (ESS) System.

What is an HSA?

A Health Savings Account (HSA) is a tax-favored savings account designed to help you save for and pay medical expenses. Contributions to an HSA are 100% deductible up to the legal limit, similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and interest earnings accumulate tax-deferred. Unlike a flexible spending account (FSA), the funds in an HSA roll over year to year and continue to grow tax-deferred, making the money yours to keep.

How does an HSA plan work?

An HSA works in conjunction with a high-deductible health insurance plan. HSA funds can be used to pay for the insurance deductible and any qualified medical expenses, including dental and vision care. However, any funds withdrawn for non-qualified medical expenses are considered taxable income and are subject to a 20% tax penalty. After meeting the calendar-year deductible, the health insurance plan covers 90% of the remaining expenses, with you responsible for 10% until the out-of-pocket maximum is reached.

Eligibility for an HSA

To be eligible for an HSA, you must be covered by a qualified high-deductible health insurance plan, not have other health insurance, not be enrolled in Medicare, and not be another person's dependent. Exceptions to the "other health insurance" rule include coverage for accidents, dental care, disability, long-term care, and vision care. Additionally, workers' compensation, specified disease, and fixed indemnity coverage are permitted.

Fees

Your HSA account with Central Bank does not have fees such as a one-time setup fee, monthly maintenance fee, or minimum balance fee.

Using HSA Funds for Dependents

Generally, you can use your HSA funds for qualified medical expenses of the account holder, their spouse, or dependents, even if those dependents are not covered by the city’s health insurance.

Non-Medical Withdrawals

Non-medical withdrawals from an HSA are taxable income and subject to a 20% tax penalty, except if the withdrawal is made after the account holder turns 65, becomes totally and permanently disabled, or dies.

Using HSA Funds for Premiums

HSA funds cannot generally be used to pay insurance premiums. However, exceptions include qualified long-term care insurance, health insurance while receiving federal or state unemployment compensation, COBRA continuation coverage, and Medicare premiums.

Tax Benefits of an HSA

HSAs offer three significant tax benefits: contributions are 100% deductible from federal gross income, interest on savings accumulates tax-deferred, and withdrawals for qualified medical expenses are tax-free.

Qualified Medical Expenses

Qualified medical expenses are those defined by Internal Revenue Code Section 213(d), which generally include expenses to alleviate or prevent physical or mental defects or illnesses, including dental and vision care. Non-qualified expenses include cosmetic surgery, health club dues, illegal operations or treatments, maternity clothes, and general toiletries.

HSA and Estate Planning

If an HSA account holder dies, the HSA will be treated as the surviving spouse’s HSA if the spouse is the named beneficiary. If there is no surviving spouse or the spouse is not the beneficiary, the HSA funds will be included in the federal gross income of the estate or named beneficiary.