There are two separate components involved to take advantage of the opportunities presented by Health Savings Accounts. The first component, insurance, consists of purchasing a qualifying high deductible health plan (HDHP), not just a health plan with a high deductible. The second component, banking, consists of opening a Health Savings Account. To be eligible to open a Health Savings Account you must satisfy the following conditions: 1) be enrolled in a qualified high deductible health plan, 2) not be enrolled in any plan that isn't a high deductible health plan, 3) not be enrolled in Medicare and 4) not be claimed as a dependent on someone else's tax return.
High Deductible Health Plans
HDHPs are available to individuals under age 65 and employer groups of all sizes. In 2013, a health plan qualifies as a high deductible health plan if it at least satisfies the following criteria:
Individual Only Coverage
- A deductible of at least $1,250 per calendar year
- Out of Pocket expenses due to deductibles, co-pays, etc. may not exceed $6,250 per calendar year
- A deductible of at least $2,500 per calendar year
- Out of Pocket expenses due to deductibles, co-pays, etc. may not exceed $12,500 per calendar year for the family
- The HDHP may not start paying for any individual until the $2,500 family deductible is satisfied
Please be aware that not all plans with high deductibles satisfy the qualifying criteria.
Who should consider a High Deductible Health Plan (HDHP)?
- Employers interested in immediate reductions in health insurance premiums
- Employees who are generally healthy and do not utilize a significant amount of health care services annually
- Employers that want to offer health insurance to employees but can't afford it
- Employees who want access to federally tax free funds to pay for their health care expenses
- Employees who want freedom of choice to see any physician they choose
- Employers and employees interested in expanding the amount they can deduct from their federal income taxes
Who should not consider a HDHP?
- Employees who are heavy utilizers of health care services
- Employers not willing to educate employees on the benefits of HSAs and HDHPs
Health Savings Accounts
Once you are enrolled in a qualifying HDHP, and satisfy the other conditions outlined above, you may open a Health Savings Accounts. The HSA is a tax exempt trust or custodial account established exclusively for the purpose of paying qualified medical expenses of a beneficiary who becomes covered under a high deductible health plan (HDHP).
With Individual Only HDHP coverage, the maximum amount you may contribute to your HSA in 2013 is $3,250. With Family coverage, you may contribute $6,450. If you are between the ages of 55-64 you may contribute an additional $1,000. You are able to withdraw those funds federally tax free if you need to pay for medical, dental or vision expenses incurred during the year. Any funds remaining in your account at year end roll over for use in future years.
Click here for additional details of 2013 HSA contribution limits.
Deposits into the account are deductible from your federal income taxes. Distributions are not subject to taxes if withdrawn to pay for legitimate medical expenses. Among qualifying medically related expenses that may be paid from HSA accounts are:
- Deductibles applied to provider charges
- Coinsurance applied to provider charges
- Physician & Hospital co-payments
- Prescription Drugs
- Dental and vision services
- When over 65, Medicare premiums
- Long Term Care premiums
- COBRA premiums
If you use the funds for other than healthcare related expenses, you must pay income tax plus a 10% penalty. Upon attaining age 65, you may use the funds for non-medically related expenses. You will only have to pay income tax on the withdrawals at that point.
If you decide that you want a Health Savings Account for you, your family and employees, the first step is to obtain a high deductible health plan. After you've been approved for your HDHP, you will be able to establish your Health Savings Account with your financial institution and be on your way to take control of your future health care expenses. CPhA members may enroll in an HSA online by going to the Enroll Now section.
* Please Note: Marsh does not render tax or legal advice. You should consult your advisors regarding applicable tax or legal considerations.