A Health Savings Account (HSA) is a medical savings account that has tax benefits for Americans. As health care costs have continued to rise over the last decade, more and more emphasis has been placed on curbing costs and creating an awareness to encourage smart consumerism. The health insurance landscape has changed considerably as health insurance companies try to create high quality plan options at affordable prices.
Through it all we have seen the emergence of PPOs, HMOs and other types of managed care options, meant to steer consumers to certain doctors or hospitals with the promise of reduced claim costs. In the early days of managed care a greater impact on cost containment was recognized. However there was a point in time where the major savings for these types of plans moderated and the need for new options to produce even great cost containment and the ability to shift some of the out of pocket risk to the consumer emerged to keep health insurance affordable.
Qualified High Deductible Health Plans (QHDHP) were created to provide consumers with the option to have a plan with a higher deductible and a greater out of pocket maximum which would equate to lower premiums. Unlike most other types of plans, there is generally no first dollar coverage such as prescription or office copays on a QHDHP plan. The entire deductible must be met first before the plan pays on a claim. The trade off for the consumer in having lower premiums is taking on additional out of pocket risk.
Health Savings Accounts History
In 2003 Health Savings Accounts were developed as a way to help individuals that are enrolled on a QHDHP plan pay the higher out of pocket expenses as well as to put aside money in an account for future medical expenses. The concept is quite simple. By setting up a health savings account at a bank or other financial institution the consumer is able to put money into the account, on a pre-tax basis to use at a later date for medical claims incurred by not paid by their health insurance plan. As long as the money in the account is used only for acceptable medical expenses it will remain non-taxable.
The health savings account is owned by the consumer. Whether they are insured on an employer sponsored QHDHP or on an individual basis the account stays with them no matter their employment circumstances. For those that don’t incur a lot of medical expenses they can continue to grow the account for the future when they may experience higher medical expenses. Standard health insurance plans are not eligible for health savings accounts.
It’s important to note that not everyone that is enrolled on a QHDHP is eligible to have a health savings account. Because there are tax benefits included in having a health savings account there are specific rules that must be met. The following situations allow for a health savings account:
- Being enrolled in a QHDHP plan and not having any other coverage such as a secondary spouse’s plan. If you have dual coverage on a spouse’s plan you are ineligible for a health savings account.
- Not enrolled in Medicare. Those enrolled in Medicare are not ineligible.
- Not receiving VA or Indian health service benefits in the last three months.
- Not covered by your own or your spouse’s flexible spending account. Many employers offer their employees the option to enroll in a flexible spending account where they can have money taken out of their paycheck pre-tax and put into the account to pay for medical expenses. This fund is different than a health savings account.
Health savings accounts can be a valuable financial tool for those that are looking to supplement a high deductible health plan and ensure that they have the funds set aside to pay their future out of pocket expenses. It is important to understand the tax benefits and implications before enrolling in a health savings account to ensure that you are meeting all of the requirements. For healthy consumers looking for a plan that provides catastrophic coverage while building a savings account to cover future expenses a health savings account can be the perfect option.
You can save $3,500 if you are single or $7,000 as a family tax free in a HSA in 2019.
If you want to compare HSA plans, check out HSASearch.com. They have a good selection of different plans.