Can I keep my HSA account after I cancel my policy?

Question

Can I keep my HSA account after I cancel my policy?

Answer 1

The first answer was partially right.  You can no longer contribute unless covered by a qualifying plan, but you can leave the money in the account to earn interest, or you can use it for any qualified medical expenses for your family.  Also, if you elect COBRA continuation, you can use these funds to pay your COBRA premium, or, if you are enrolled in Medicare, you can reimburse yourself for your Part B premium.  All of these distribution options are tax-free.

The pro-rated requirement of contribution is no longer valid, provided you were covered by a qualifying plan for 12 months.  The 2008 contribution limits are $2900 for a single employee, and $5800 for coverage with dependents.  Also, there is a "catch-up" allowance for any enrollee over age 55 of $900 for 2008.

Answer 2

Yes you can keep your HSA funds. You can not deposit more money unless you also have a qualified high deductible health plan. You can use the money left in your HSA account for any qualified expenses for you and your family members regardless of whether or not they are covered by health insurance.

Even though HSA's allow you to deposit an annual amount the deposits are still prorated if you cancel your plan. For example if you deposited the maximum annual and canceled your plan 6 months into the year you would have to withdraw 6  months worth of your contribution.

For a single the 2007 annual maximum contribution was $2,850 divided by 12 months = maximum prorated monthly contribution $237.50 per month.

Insurance Biz CT is mistaken on the contributions they ARE prorated if you CANCEL your plan. This is straight from the Treasury department.

Does my contribution depend on when I establish my HSA account or when my HDHP coverage begins?

Your eligibility to contribute to an HSA is determined by the effective date of your HDHP coverage. Your annual contribution depends your HDHP coverage. If you are not covered on December 1, your contribution depends on the number of months of HDHP coverage you have during the year (technically, the months where you have HDHP coverage on the first day of the month). For 2007 and forward, if you are covered on December 1, you are treated as an eligible individual for the entire year. However – if you cease to be an eligible individual during 2008, the excess over the pro rated contribution is included in income and subject to a 10 percent additional tax. The amount you can contribute is not determined by the date you establish your account. However, medical expenses incurred before the date your HSA is established cannot be reimbursed from the account