Health savings accounts (HSAs) have become a popular option for people who wish to have comprehensive individual health insurance while building up tax-free savings they can roll over from year to year. According to research firm Devenir, more than 16 million people had an HSA in 2015.
An HSA allows individuals to use tax-free funds to pay for medical expenses, doctors’ visits, prescriptions, and other qualified health expenses. In many cases, employers also contribute matching dollars.
Before you can contribute to your HSA, however, you must first be enrolled in a high-deductible health plan (HDHP). As the name indicates, HDHPs have a higher deductible than traditional insurance plans.
When Is an HDHP HSA Qualified?
Just because you have an HDHP, however, does not mean it qualifies for an HSA. In 2016, for example, just 19 percent of the HDHPs available on the federal exchange were HSA eligible.
High deductibles are not the only requirement for an HDHP to be HSA eligible. As defined by the IRS, HSA qualified HDHPs have:
- A higher deductible than typical individual health insurance plans.
- A maximum limit on the annual deductible and medical expense costs, including copays and other items.
- No insurance coverage until the deductible is met, except for the following expenses:
- Health insurance premiums
- Wellness and preventive care (e.g., checkups, mammograms, smoking cessation, weight loss)
- Expenses resulting from accidents
- Dental expenses
- Vision expenses
The IRS publishes minimum deductible and maximum medical expense limits annually. The chart below lists the annual HSA contribution limits and the HDHP minimum required deductibles for 2016 and 2017.
Contributions and out-of-pocket limits for HSAs and HDHPs
|For 2016||For 2017|
|HSA contribution limit (employer + employee)||Self only: $3,350
|Self only: $3,400
|HSA catch-up contributions (age 55 or older)*||$1,000||$1,000|
|HDHP minimum deductibles||Self only: $1,300
|Self only: $1,300
|HDHP maximum out-of-pocket amounts
(deductibles, copayments, and other amounts besides premiums)
|Self only: $6,550
|Self only: $6,550
*Catch-up contributions can be made at any time in the year the participant turns 55.
How to Tell If Your Plan Is HSA Eligible
If you’re new to HDHPs and HSAs, sorting through the various requirements can feel a bit like trying to read a bowl of alphabet soup.
If you’re overwhelmed, keep in mind that insurance carriers will label their plans as HSA eligible.
Other HSA Requirements
In addition to having an HSA-qualified insurance policy, there are several other requirements to contribute to your HSA in a given year:
- You must be covered under an HDHP.
- You must have no other health coverage, with the exception of several types of ancillary coverage.
- You must not be enrolled in Medicare.
- You cannot be claimed as a dependent on someone else's tax return.
HSAs are an increasingly popular choice for people looking to manage the rising cost of individual health insurance. Because HSAs offer triple tax advantages, more and more people are likely to participate in the future.
What questions do you have about individual health insurance options? Let us know in the comments.