What is an HSA?

A Health Savings Account (HSA) is a tax favored bank account which you link to a qualifying High Deductible Health Plan (HDHP). It is a way to save money with limited (or potentially no) taxable consequences to save for future medical expenses, much like a 401k plan sets aside money for your retirement. High Deductible Health Plan’s typically cost less in premium dollars, since more of the financial burden is placed on you. Which allows you to take the savings and apply them towards future medical expenses through savings in a personal HSA bank account.

If you are considering a HDHP with an HSA Account on an individual basis, the money you put into the account can grow interest tax free and even, in some cases, be invested in mutual funds once you reach a certain dollar threshold (check with your banking institution of choice for details). When you use the money from the account for qualifying medical, dental and vision expenses, you pay no taxes.

The money rolls over each year, unlike a Flexible Spending Account (FSA) which has a use-it-or-lose-it clause. This means that the money can accumulate over many years to pay the deductible, copays and other medical expenses in a bad claims year. Annual maximums and qualified expenses for these accounts are determined by the IRS.

What is a High Deductible Plan?

A high deductible plan typically has lower premiums, but higher deductibles. A deductible is the amount of money (after premiums) you have to pay towards medical expenses before the insurance plan begins to pay anything. For a HDHP to qualify to be coupled with an HSA Account, it must meet certain minimum and maximum requirements. For 2017:

Year Minimum Deductible (Single) Minimum Deductible (Family) Maximum Out-of-Pocket (Single) Maximum Out-of-Pocket (Family)
2017 $1,300 $2,600 $6,550 $13,100

And Out-of-Pocket Maximum is the maximum amount of money you will be required to spend on qualifying medical expenses in a plan year before the plan itself begins covering everything at 100%. These amounts could be higher for out-of-network expenses and still qualify. So basically, for the HDHP to qualify, the deductible must be MORE than minimums noted, and the Out-of-Pocket max can equal or be LESS than those noted in the table above.

What is the maximum I can contribute each year to an HSA?

This amount can vary from year to year as the IRS makes adjustments. For 2017, you can contribute up to $3,400 if you are single, or up to $6,750 if you are family (which means you carry at least one dependent on your plan: spouse or child). Anything over these amounts could trigger a taxable event.

If I’m over 55, can I make catch-up contributions?

Yes! You can contribute an additional $1,000 per year. If your spouse is also 55 or older, he or she may establish a separate HSA and also make catch-up contributions.

Are there other exclusions to participating in an HSA?

Unfortunately, yes. You cannot participate in an HSA if:

You are not enrolled in a qualifying HDHP
Are covered by any other traditional health insurance
Enrolled in or applied for Medicare
Enrolled in TriCare (or have received any VA benefits in the last three months)
If you are claimed a dependent on someone else’s tax return

If my spouse has an HSA and I have one, can we double the IRS limits?

No – if you both have HSA plans separately, you share the family IRS contribution limit. The only exception is for the catch-up contributions if you’re over 55.

Are there any added benefits to joining a HDHP with an HSA offered through my employer?

Yes! Employer sponsored HSA’s usually take your contributions to the HSA through pre-tax payroll creating a Triple Tax Advantage (as opposed to the double tax advantage individuals receive). And many employers also offer matching contributions to your HSA account as an incentive to participate.

Why would I want to join a HDHP with an HSA?

Most people who purchase medical insurance do so to cover a potential medical crisis in the future, and they pay a high monthly cost to ensure they do not have a huge financial burden if something does happen to them medically. But, many people don’t even go to the doctor for a wellness exam on an annual basis, even though they are covered free under most health plans since the enactment of the ACA. Insurance companies do not refund money to people who have a good claims year (don’t need to see a doctor), so why pay high premiums for a plan you may or may not actually need? Instead, consider a less expensive HDHP and invest the savings in a personally owned, tax advantaged HSA which rolls over each year to help you meet those expenses in the year you DO have a bad or even catastrophic claim.

If I have an HSA with my employer, what happens if I leave?

It’s your account from start to finish. You lose nothing and have no risk whatsoever. You can continue to use those monies for qualifying medical, dental and vision plans until they are exhausted. However, you cannot contribute to the plan unless you enroll in a qualifying HDHP.

I have medical issues, will a HDHP plan with an HSA work for me?

In many cases, these plans can still be a great option for you even if you have medical conditions. The important things to consider when comparing any plans are both the deductibles and the out-of-pocket maximums. Some regular PPO plans have very high out-of-pocket maximums and are quite costly on monthly premiums. One big consideration is to take some time to determine the full cost of your existing medications as well as the cost of office visits, because on a HDHP you will have to pay that full cost (as negotiated by your insurance provider) until your deductible is met (although HSA monies can be used towards these expenses).

What are qualifying expenses under an HSA?

These are determined by the IRS, but include deductibles, copays, coinsurance, medical, dental, vision and prescription expenses, as well as LASIK and hearing aids. You can also use HSA monies to pay COBRA premiums between jobs, and long term care (LTC) costs and premiums for LTC insurance.

The full list is available on the IRS website at https://www.irs.gov/pub/irs-pdf/p502.pdf