HSA Eligible Medical Policies

hsa

As insurance premiums continue to rise, you may find yourself exploring coverage options you may not have considered in the past.  One of which is an HSA eligible policy that has risen in popularity over the years for multiple reasons.    Health Savings Accounts are associated with high deductible health plans – a plan with an annual deductible no less than $1,300, and an annual out-of-pocket maximum not to exceed $6,550; the overall cost of an HSA eligible policy can be less than other plans, while it still provides you with the same catastrophic coverage.

Health Savings Accounts allows the account holder to pay for current health care expenses and save for those in the future.  Payments towards qualified medical expenses are withdrawn tax-free, and interest earned on deposits also accrue tax deferred.  Funds roll-over each year, and the account belongs to the individual and follows the individual throughout his/her career.  An HSA eligible policy can be purchased on both the individual and group marketplace, providing full flexibility.

Contributions are tax-deductible or are deducted directly from payroll pre-tax. Employers may also offer to contribute towards an HSA, and contributions are excludable from an employee’s income and are not subject to federal income tax, Social Security or Medicare taxes.  In addition, employer contributions are deductible as a business expense to the company.  Employers may choose to contribute a set amount or make ‘matching’ contributions.  The IRS sets annual limits on the amounts that may be contributed to the HSA.  If funded from both the employer and employee, it is important to ensure that the total contributions remain within the annual IRS limits.  Any contributions made in excess of these annual limits may become taxable income to the employee.

For 2016, an individual may contribute up to $3,350; for a family, that amount is $6,750. For 2017, the individual contribution will be $3,400, while the family maximum remains the same.  If you are 55 or older, you can make a ‘catch-up’ contribution of an additional $1,000 per year.  If your spouse is also 55 or older, he or she may establish a separate HSA and make a ‘catch-up’ contribution to that account.  When you enroll in an HSA eligible policy and open an account prior to December 1st, you can contribute the total allowable amount for that year.  To take advantage of the tax savings, however, you must stay enrolled in the qualified plan for the following 12 months.

One drawback of an HSA high deductible health plan (HDHP) is that the only first dollar benefits a policy holder would receive are for preventative care.  All other expenses, including prescriptions are initially subject to the deductible and then capped at the annual out-of-pocket maximum.  A single overnight stay in the hospital will in all likeliness incur an expense to meet your annual out-of-pocket maximum; conversely, a plan with a finite co-pay or co-insurance would incur much less of an expense.  While insurance provides you with a vehicle to transfer unknown risk, the purchase of an HSA eligible policy provides an avenue for interim and long term savings while mitigating against the frequency of medical expenses.

Simply put, for healthy individuals, both young and old, an HSA plan is an excellent option.  For those with high incomes looking to save additional tax deductible dollars, an HSA is the best option out there.  Only for those individuals where expenses are somewhere in the middle between deductibles and the out-of-pocket maximum should consider traditional PPO and HMO options.

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