1.   Why can't the out-of-pocket amount be tied to the maximum contribution? Tying the maximum contribution rate to the out-of-pocket maximum is a viable policy, but the cost to the Federal government in lost taxable income made that idea politically unviable when the law was passed.

2.   Why not carve out prescription drugs and allow tiered co-pays? Including prescription drugs as a benefit below the deductible will drive up the low cost of HSA-qualified HDHPs, and, as a result, reduce the amount of savings derived from switching to an HDHP. Likewise, tiered co-pays, or any other benefit that is paid outside the deductible, greatly diminishes the effect of consumers spending their own money. When you spend your own money, you spend it more frugally than if you are spending someone else's money.

3.   Why can't early retirees pay their HSA-qualified health insurance premium from their HSA? This change in the law was suggested but the objection is that given that there are millions in the individual market who have health insurance but receive no tax break for their purchase, why should insured early retirees get special treatment?

4.   Why can't seniors use their HSA to pay for Medigap coverage? The guiding principle of HSAs is for people to use their own money to meet a substantial deductible, thereby providing a financial incentive to spend the funds wisely and not to over consume. The main purpose of a Medigap policy is to insure the Medicare deductible. Allowing HSA funds to pay for Medigap insurance would be akin to allowing HSA funds to buy insurance to cover the HSA deductible. In other words, it would be using HSA funds to defeat the entire purpose of an HSA.

5.   Why are the long-term care premium amounts that can be paid out of an HSA limited? During the HSA legislation drafting process, there were other issues being negotiated that needed political capital more than allowing for unlimited amounts to be spent on long-term care premiums.

6.   Why can't HSA distributions be tax free upon your death? The revenue loss to the Federal government made the price tag for that suggestion too high.

7.   Why can't we have one joint HSA and still make "catch-up" contributions? There can be only one primary account holder of the HSA. Both spouses may contribute. The practical effect of this restriction is not significant.

8.   If I am self-employed, can I contribute on a pre-tax basis? How about for partnerships or for S corporation owners who own more than 2% or for LLC owners? Self-employed can only take an above-the-line deduction for their premium and HSA contribution. Regardless of how your S corporation or LLC is structured, the only way you can structure your HSA contributions is as an above-the-line deduction. The HSA legislation simply cited current law in this regard. It was a political impossibility in the HSA legislation to make the necessary change in law to allow pre-tax contributions for LLC owners, S corporation owners or the self-employed. For further guidance for partnerships and S corporations, see IRS Guidance 2005-8.

9.   What is an "above-the-line" deduction? An above-the-line deduction reduces your Federal taxable income dollar for dollar by the amount you contribute. You do not have to itemize to claim this deduction. For example, if you contribute $1,000 to your HSA, you reduce your Federal taxable income by $1,000.

10.   Why can't I pay my health insurance premiums with my HSA? The money in your HSA is designed to meet your healthcare expenses below your deductible, not to meet your health insurance premiums. What if people spent their entire HSA deposit on their insurance premiums, and found no funds left to meet their healthcare costs to meet their deductible? The only time you are allowed to pay the health insurance premium with your HSA funds is if you are collecting Federal or State unemployment benefits or are on COBRA.

11.   Can you provide a list of qualified medical expenses? Please also see IRS Publication 502, which can be found in the U.S. Treasury section of this website, or at www.irs.gov/pub/irs-pdf/p502.pdf.