An HSA qualified plan is an inexpensive high deductible health insurance plan. An HSA doesn’t have copays on doctors visits or prescription drugs before the deductible. Covered charges are paid after the deductible is met. Preventive services are paid 100% with no cost sharing. Covered expenses are discounted according to negotiated rates if the deductible has not been met
HSA qualified plan participants have the option to open a retirement account that is a lot like an IRA, except that money can be used to pay for qualified health care costs. This is the Health Savings Account, or HSA, and is like a tax-deductible savings account with unlimited investment options. The Savings Account can reimburse out of pocket medical expenses. For example, expenses before the deductible or non-covered expenses like acupuncture or massage can be reimbursed. The money the participant deposits, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year until the participant turns 65.
There are unlimited investment options available for your HSA. Check with your local bank and ask friends or co-workers for recommendations. Fidelity and UMB are two competitive administrators with a variety of investment options.
The 2 Parts of an HSA Plan
Part 1: The HSA Qualified High Deductible Health Insurance Policy
The IRS considers a high deductible health insurance plan a policy with a minimum deductible. For 2020, the minimum deductible is $1,400 self-only coverage and $2,800 for family coverage. The minimum deductible amounts are still relatively low. The maximum out-of-pocket, including deductibles and coinsurance, for allowed costs, must be no more than $6,900 for self-only coverage and $13,800 for family coverage. These are 2020 HSA contribution limits and out of pocket limits. Further, preventive care still has first dollar coverage on HSA qualified plans.
HSA qualified health insurance plans may be purchased without the savings account. By doing this, you would just have a high deductible health insurance plan with relatively low premiums. And due to the lower out of pocket maximum limit for HSA plans compared to general ACA plans, an HSA is typically the best way to have a lower out of pocket maximum on your plan. However, you’re required to have an HSA qualified HDHP in order to set up a Health Savings Account.
Part 2: The Tax-Exempt Individual Health Savings Account
You can have a qualified health insurance policy on its own, so the savings account isn’t required. The savings account is designed to cover routine medical expenses and provide savings. In any given year you may deduct the amount you contribute into your HSA from your gross income. This means that you can reduce your MAGI to qualify for higher ACA subsidies. See how to calculate MAGI for ACA subsidies or tax credits.
The 2020 HSA contribution limit is $3,550 for self-only coverage and $7,100 for family coverage.
People over the age of 55 are allowed an extra $1,000 catch-up contribution.
If you change to a non-HSA qualified plan later on, you can still keep all of the money in the account itself. However, you just can’t contribute to the health savings account anymore. You may also still spend the money in your HSA on anything the IRS Publication 502 considers a legitimate health insurance expense.
HSA Limits by Year
Don’t put it off!
By setting up an Health Savings Account now you can start accumulating toward your retirement in your Health Savings Account. The premium savings accumulate in your account instead of going to an insurance company. Compare HSA premiums to the price of a typical health insurance plan to see how much you can save. When you take the money that would have gone to the insurance company and put it into an interest-bearing account, that money will keep building until you turn 65.
It’s Not Too Late To Start
If you have been putting off getting a Health Savings Account, premiums are significantly lower than traditional fully-insured health insurance plans with co-pays and low deductibles. You can fund the account using the money saved on premiums. The money left over in your account is yours to keep in any given year you don’t need to reimburse yourself for medical expenses. And, you still have very low exposure because once you meet your deductible, the health insurance company pays your medical expenses.
Qualifying Medical Expenses
*See IRS Publication 502 for a list of qualifying HSA expenses. The certificate contains all terms and conditions of coverage, including benefits and exclusions. InsuranceShoppers doesn’t render tax or legal advice. Federal and state regulations are subject to change. We recommend licensed professionals if you require legal or tax advice.