Health Savings Account Plans
Your employer may offer a second option of Health Savings Accounts (HSAs). These are coupled with a High Deductible Health Plan (HDHP). Small business owners, self-employed and individuals may also use this program.
A qualifying plan must have a minimum deductible of $1,300 for single and $2,600 for family. Maximum out of pocket costs are $6,450 for single and $12,900 for family.
To be a qualifying plan you must receive a written statement certifying your plan qualifies as a HDHP. Plans may have the required features; however, the insurance company must be willing to report qualifying policy holders to IRS to qualify. You need the statement from the insurance company to qualify as a HDHP.
High Deductible Health Plans
Most HDHP are Preferred Provider Organization (PPO). When possible, process all your medical claims through your insurance carrier. You may not meet your deductible. However, the PPOs have contractual agreements with providers for maximum charges that you only receive through your insurance carrier.
Health Savings Accounts
A Health Savings Account is a great place to accumulate funds to cover out of pocket medical expenses. The maximum amount you can contribute is $3,350 for a single and $6,650 for families. If you are over 55, you are allowed an additional $1,000 contribution.
This is similar to “catch-up” provisions allowed for IRAs and 401(k).
The annual contribution amount changes every January. The change is based on Consumer Price Index (CPI).
For an individual, you have until April 15th to make your contribution to your Health Savings Account. This is like contributions for an IRA.
If your HSA is with an employer, you are likely to be on a calendar year for contributions similar to your 401(k) contributions.
Health Savings Accounts are portable. You may begin an account with an employer and then change employment. You may take your account with you – rolling it over like you can do with a 401(k).
There isn’t a limit to how much you may accumulate in an HSA. You also may invest your funds – employers may have restrictions on investing. The earnings on your HSA are tax-free, losses are non-deductible. Your administration fees for HSAs are tax-deductible. Investment fees are not.
Timing is everything. A High Deductible Health Plan has to be in place before a medical expense is incurred. Contributions to your HSA account to cover the medical expense can happen after your expense. However, it must be by April 15th of the year following the expense.
Timing is everything. The rules change for Health Savings Plans once you are on Medicare. You can no longer contribute to Health Savings Plans. Yet out of pocket expenses you incur can be reimbursed from your HSA.
Tip: Set up a Health Savings Account separate from your Insurance. This will make changing health insurance easier should the need occur.
Employers are trending towards Health Savings Plans. The High Deductible Health Plans have lower premiums. The high deductibles cause employees to be more price conscious in their medical care. This also keeps premiums lower.
For more reading on this:
Can you benefit from a Health Savings Account?
Pros and Cons of FSAs and HSAs – Part I
Pros and Cons of FSAs and HSAs – Part III