Employers offering a high deductible health plan (HDHP) have several ways to supplement the low-coverage and make the benefit more meaningful. One way is to offer a group coverage HRA (GCHRA) which enables employers to reimburse employees for out-of-pocket expenses. Another is to offer an HSA alongside the HDHP.
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.
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 an HDHP. As the name indicates, HDHPs have a higher deductible than traditional insurance plans. However, they do offer lower monthly premiums, which is why so many employers and individuals are drawn to them.
When Is an HDHP HSA Qualified?
Just because you have an HDHP, does not mean it qualifies for an HSA.There are a few things to consider since having a high deductible is 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 2020.
Contributions and out-of-pocket limits for HSAs and HDHPs
|HSA contribution limit (employer + employee)||Self only: $3,550
|HSA catch-up contributions (age 55 or older)*||$1,000|
|HDHP minimum deductibles||Self only: $1,400
|HDHP maximum out-of-pocket amounts
(deductibles, copayments, and other amounts besides premiums)
|Self only: $6,900
*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.What helps is knowing that insurance carriers label their plans as HSA eligible before you purchase. If you’re interested in shopping for an HSA-compatible HDHP, we recommend that you meet with an insurance broker in your area to find one that meets your needs.
PeopleKeep is also partnered with a health insurance concierge, KindHealth, who can help you find a suitable group coverage plan
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.