Effective Dates: 09/12/2024 - Present Previous | Next

TN 101 (09-24)

SI 01120.235 Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs)

A. Introduction to Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs)

The Medicare Prescription Drug, Improvement, and Modernization Act, signed into law on December 8, 2003, created the Health Savings Accounts (HSAs) system. An HSA is a tax-exempt trust or custodial account used to pay for the qualified medical expenses listed in the Internal Revenue Service (IRS) publication 502, of the account beneficiary, spouse, or dependents. HSAs are set up with qualified trustees, which can be banks, insurance companies or any entity already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. Medical Savings Accounts, also known as Archer MSAs, are trust-like accounts set up solely as an IRS-related, tax-exempt financial instrument for medical expense purposes. HSAs superseded MSAs; however, some valid MSAs still exist based on previously existing law.

B. Policy for HSAs and MSAs

Generally, HSAs and MSAs are countable resources for Supplemental Security Income (SSI) purposes because individuals may use those funds to pay for expenses unrelated to their medical needs. However, there are some HSAs and MSAs that may not count towards the resource limit. For HSAs and MSAs that are not countable resources, see SI 01120.235B.3. (in this section).

1. Access to HSA and MSA funds

Although individuals generally use HSAs and MSAs to pay for qualified medical expenses listed in the IRS publication 502 (Medical and Dental Expenses), individuals may use HSA and MSA funds at any time for expenses unrelated to their medical needs.

2. Additional tax for using HSA and MSA funds for non-qualified expenses

Individuals pay an additional 20 percent income tax on the amount not used on qualified medical expenses.

HSA and MSA additional tax waived

The IRS does not impose a 20 percent additional tax on distributions an individual receives after they become disabled, reach age 65, or die. Instead, individuals pay regular income tax on the amount they did not use for qualified medical expenses.

3. Exception to counting HSAs and MSAs as resources

In some instances, HSA and MSA trustees may set restrictions on accessing the account, such as frequency and size of distributions. When access to the HSA or MSA funds is restricted and an individual can only use the funds for qualified medical expenses, and nothing else, exclude the HSA or MSA from countable resources. Treat these restricted HSAs and MSAs following the policy on health flexible spending arrangements in SI 01120.230.

4. Qualified medical expenses

Qualified medical expenses are those specified in the plan that would generally qualify for the medical and dental expenses deduction. IRS Publication 502, (Medical and Dental Expenses) contains an explanation of these expenses. Some examples of qualified medical expenses include:

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    Acupuncture,

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    prescription medicine or drugs,

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    x-rays,

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    dental treatment,

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    contact lenses, and

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    hospital services.

For IRS purposes, individuals must retain and provide documentation to show that they used HSA and MSA distributions exclusively to pay or reimburse qualified medical expenses not previously paid or reimbursed.

C. How to identify HSAs

General criteria for identifying HSAs include the following:

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    HSAs require individuals to have coverage under a high deductible health plan (HDHP). Besides an HDHP plan, individuals could have separate coverage for dental or vision care, or coverage:

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      specifically designed for a certain disease, or

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      for hospitalization at a fixed amount per day, or

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      for liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.

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    An individual cannot have an HSA and enroll in Medicare.

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    Contributions remain in the HSA from year to year until depleted.

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    HSA distributions may be tax free if used to pay for qualified medical expenses.

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    HSAs are portable. Portable means that if an individual changes jobs or leaves the work force, they have the option to keep the HSA.

1. Contributions to HSAs

Contributions to an HSA must be in cash. Contributions of stock or property are not allowed.

  1. a. 

    Who may contribute to an HSA

    An eligible individual, employer, or both can contribute to an HSA in the same year. Also, self-employed (or unemployed) individuals, their family members, or any other person may contribute to an HSA.

  2. b. 

    Limits on contribution amounts

    The contribution amount to an HSA depends on the:

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      type of HDHP coverage,

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      individual’s age, the date of HSA eligibility, and

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      date the individual ceases to be eligible for the HSA.

The amounts also vary per year. For example in 2011, for self-only plans the contribution limit was $3,050. For more information on the contribution limits to HSAs, refer to the IRS website.

2. Distributions from an HSA

Distributions from an HSA are not income for SSI purposes. HSA distributions are conversions of a resource. HSA trustees report distributions on the Form 1099-SA (Distributions from an HSA, Archer MSA, or Medicare Advantage MSA). For more information, see information on conversion or sale of a resource in SI 00815.200.

3. Balance in an HSA

Unused amounts that remain at the end of the year in an HSA are generally carried over to the next year.

D. How to identify MSAs

General criteria for MSAs include the following:

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    Self-employed individuals (or spouse) or employees of a small employer, as defined by IRS, may have an MSA if they have a self-only or family HDHP.

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    Individuals cannot have Medicare or other health coverage except for dental or vision care, or coverage:

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      specifically designed for a certain disease, or

    •  

      for hospitalization for a fixed amount per day, or

    •  

      for liabilities incurred under workers’ compensation laws, tort liabilities, or liabilities related to ownership or use of property.

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    Contributions to an MSA by an employer may be excluded from gross income.

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    Contributions remain in the MSA from year to year until depleted.

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    MSA distributions may be tax free if used to pay for qualified medical expenses.

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    MSAs are portable. Portable means that if an individual changes jobs or leaves the work force, they have the option to keep the MSA.

1. MSA contributions

Contributions to an MSA must be in cash. An individual cannot contribute stock or property.

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    Who may contribute to MSAs

    Either an individual or their employer may contribute to an MSA. An individual and their employer cannot both make contributions to an MSA in the same year.

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    Contributions limits

    There are two limits on the amount an individual and their employer can contribute to an MSA as follows:

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      An individual or their employer can contribute up to 75 percent for a family plan and 65 percent for a self-only plan of the annual deductible of the HDHP.

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      An individual cannot contribute more than they earned for the year from the employer through whom they have the HDHP. If self-employed, they cannot contribute more than their net self-employment income.

2. MSA distributions

Distributions from MSAs are not income for SSI purposes. MSA distributions are conversions of a resource. MSA trustees report distributions on the Form 1099-SA (Distributions from an HSA, Archer MSA, or Medicare Advantage MSA). For more information on conversion or sale of a resource, see SI 00815.200.

E. Differences between HSAs and MSAs

These are some differences between HSAs and MSAs:

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    An individual who is not enrolled in Medicare and participates in a HDHP can create a HSA.

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    Individuals who participate in a HDHP, who are not enrolled in Medicare, and who are self-employed or employed by a small business as defined by the Internal Revenue Service (IRS) can create MSAs.

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    Employers, individuals, or both, can contribute to an HSA. However, MSAs require that only one or the other contributes during the year.

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    MSA accounts do not allow you to contribute up to 100 percent of the deductible required by your HDHP, but HSAs do.

F. Procedure for developing HSAs and MSAs

If the individual alleges having an HSA or MSA or you receive information that such an account exists, such as a 5B diary, evaluate the resource status and determine the value of the HSA or MSA. Request an account statement from the account trustee, e.g., a bank or an insurance company that shows the HSA or MSA total balance.

NOTE: Tax form 5498-SA (HSA, Archer MSA, or Medicare Advantage MSA Information), and tax form W-2, Wage and Tax Statement, show amounts contributed to the HSA or MSA during the tax year. However, they may not reflect the current balance in the HSA or MSA since balances carry over from year to year.

1. Resource value for HSAs and MSAs

The resource value of an HSA or MSA is the balance in the account available for withdrawal.

NOTE: In rare cases, there may be a penalty for early withdrawal from an HSA or MSA. If a penalty exists, deduct the amount of the early withdrawal penalty prior to determining the resource value. Do not deduct any tax penalties prior to determining the resource value of an HSA or MSA.

2. Document the resource value for HSAs and MSAs

Record the resource value of an HSA or MSA in the Other Resources (ROTH) page in MSSICS.

For non-MSSICS cases, add remarks indicating the value for the HSA or MSA. If the value of the HSA or MSA affects eligibility, process the case accordingly.

3. Exception

If the individual alleges that they can only use the HSA or MSA funds for qualified medical expenses, request the account terms to verify that the account is legally restricted from uses other than qualified medical expenses. If you determine that the account is restricted to only qualified medical expenses, exclude it from countable resources. Record the HSA or MSA in the Other Resource page and exclude the balance. Add remarks that show your determination that the account is restricted. For non-MSSICS cases, add remarks indicating your determination of the HSA or MSA.

G. References

RS 01402.038 Tax-Favored Health Plans

SI 00815.200 Conversion or Sale of a Resource

SI 01120.230 Health Flexible Spending Arrangements (FSAs)

To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0501120235
SI 01120.235 - Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) - 09/12/2024
Batch run: 11/05/2024
Rev:09/12/2024