Health Insurance

What is a Health Savings Account?

Health Savings Accounts (HSAs) are savings plans that provide tax advantages for qualified medical expenses. HSAs allow consumers to deposit pre-tax dollars into a qualified savings account when they are insured under a qualified high deductible health plan (also known as an "HDHP"). Deposited funds roll over from year to year and typically accrue interest (less account fees).

Monies spent from the consumer's savings account must be for qualified expenses as set forth by IRS or penalties apply. Qualified expenses can include Medicare Premiums for yourself or spouse (including Parts A, B, C and D) but not Medigap premiums. While you can continue to spend from your HSA after enrolling in Medicare, you cannot set up or contribute any more to an existing HSA.

If you decide to delay enrolling in Medicare when you are first eligible, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not cease HSA contributions at least six months before Medicare enrollment, in this case you may incur a tax penalty.

In 2024, the qualifying HDHP policy must have a plan deductible of at least $1,600 for an individual policy or $3,200 for a family policy. These minimum deductibles change each calendar year and are set by U.S. Treasury and IRS rules. The maximum contribution that can be made to an HSA in 2024 is $4,150 for single coverage or $8,300 for family coverage. Additionally, taxpayers who are 55 years of age or older (and not on Medicare) can make a catch-up contribution of $1,000.

The maximum out-of-pocket expense (including deductibles) that you can be required to pay in 2024 is $8,050 for single coverage or $16,100 for family coverage. These maximums differ from the 2024 Affordable Care Act (Health Insurance Marketplace) plan out-of-pocket limits for single coverage of $9,450 and family coverage of $18,900. For an insurance company's health plan to qualify as an HDHP, the plan must comply with the lower out-of-pocket maximum limits above. If you are choosing between a health insurance policy with a qualified HSA component and a traditional non-HSA health plan, here are some questions you may want to try and answer:

Do I want to save money for current and future health expenses?

HSA plans have two primary components - health insurance coverage and a tax-advantaged savings account. You can use the money in the savings account to pay for your current health expenses, but you also own the money in the account regardless of whether your insurance plan changes in the future. So, HSAs offer an opportunity to build tax-advantaged savings for current and future health expenses.

Which type of plan gives me a better financial value?

Do you prefer to save money on your premiums, in exchange for agreeing to pay out-of- pocket some of the initial costs of your health care services? Or would you rather pay higher monthly premiums in exchange for your insurer covering some of your health care costs from day one? With HSA plans you can put the money you save on your premiums into your tax- advantaged savings account to build interest; whereas with a traditional plan, more money is directed towards the policy premiums regardless of how much health care you need.

Have I considered the relevant costs of each plan?

You should consider all the cost elements, not just plan premiums. Traditional plans may include higher monthly premiums, a lower deductible, as well as copays and/or coinsurance. HDHPs may have lower premiums, but a higher deductible during which all medical costs are incurred out-of-pocket. If your current health needs are minimal, an HDHP may cost less than paying the traditional plan’s premiums along with copays and coinsurance. As noted, out-of- pocket expenses incurred on an HDHP before the deductible is met can be paid from tax- favored HSA account funds.

Will I lose "unused" money in the HSA account?

HSAs don't have a "use it or lose it" provision; rather, they let you roll over unused savings from one year to the next, so you don't have to worry about ever forfeiting your money.

Is it difficult to connect the HDHP to the HSA account?

It is usually not difficult at all. First, you will need to select a financial institution to administer your HSA savings account. If the insurer offering the HDHP has a financial institution available, selecting that bank can make the set-up process and management of your funds easier and more convenient. Some insurers offer a single enrollment process so you can sign up for both the HDHP and the HSA bank account at the same time. If you plan to build up and utilize your HSA funds for the long-term, one strategy to consider is investing that money in mutual funds, bonds, or other assets. Check with the bank to inquire if these types of long-term investment options are available.

IRS rules allow you to reimburse yourself from your HSA bank account if you have used a different account or credit card to pay for qualified medical expenses (be sure to keep detailed records).

Are there any other HSA eligibility criteria?

To open an HSA, you cannot be enrolled in Medicare, cannot be covered on a health plan that is NOT an HSA-qualified health plan, cannot have received VA medical benefits in the past three (3) months, or be eligible to be claimed as a dependent on someone else's tax return.

Back to Top | Back to Health Insurance Home

• What is Traditional vs. Managed Care?
• Types of Major Medical Health Insurance
• What is a Health Savings Account (HSA)?
• Guaranteed-Issue Health Plans Including "COBRA" and "Mini-COBRA"
• How Will I Be Impacted By 2010 Health Care Reform Legislation?