What is an HSA health insurance plan?
Before we define HSA health plans, it is helpful to first understand what an “HSA” is. “HSA” stands for “Health Savings Account”. It is a bank account that is designed to pay for qualified medical and dental expenses. HSA’s are attractive in that they offer tax advantages and investment opportunities. In order to open an HSA bank account, you must be enrolled on a high deductible health plan (HDHP) that meets the government’s requirements for HSA’s. Generally, these would be HSA health insurance plans that have a deductible of at least $1,200 for an individual or $2,400 for a family, and an annual out-of-pocket maximum of $6,050 for an individual or $12,100 for a family. Note that although you must be on an HSA health insurance plan to have an HSA bank account, you are not required to open the bank account in order to have the HSA health plan.
How does an HSA Health Insurance Plan work?
An HSA health insurance plan is designed for people who mainly need catastrophic medical coverage. Except for preventive services, you would initially pay out-of-pocket for all medical services. That means each time you visit a doctor, get prescriptions or lab work, you would pay for the services. Once you’ve paid up to whatever the deductible amount is, then, subsequent health care visits and services are either free or discounted, depending on the HSA health insurance plan you selected. Some of the common preventive care services that would be free are: an annual physical exam, a routine well-woman visit, a pap smear, and a mammogram. If you rarely see a doctor and having a high deductible health plan is manageable, HSA medical insurance may be a good option for you. Kaiser Permanente offers a variety of HSA health insurance plans, as well as non-HSA Plans.
Generally, the premium for HSA health insurance plans is competitive with non-HSA health plans that carry a high deductible. So typically, you can save money on the premium. In addition to looking at the premium, however, also consider the deductible size and how much you could pay out of pocket for medical services you tend to need.
How does an HSA bank account work?
Opening a bank account is optional. If you do open a health savings account, then, you can use it to pay for qualified medical and dental visits and services. Expenses may be qualified for using the HSA bank account, but they are not automatically covered benefits on your HSA health insurance plan. For example, prescription drugs are qualified medical expenses that you can use your HSA bank account to pay for. But if your particular HSA health insurance policy excludes prescriptions, then, the amount you pay for them will not be calculated towards meeting your policy deductible.
Advantages of an HSA Bank Account
- Tax protection. Funds in a health savings account are not subject to federal tax or penalties, unless the money is spent for non-qualified expenses.
- Convenience. HSA bank accounts provide the convenience of using a debit card or bank checks to pay for expenses. The account is especially helpful for parents who are looking to give medical protection to their young adult children who are away at school, or are otherwise away from home. Note that child dependents are not eligible to have their own HSA bank accounts, but parents may use their HSA bank accounts to pay for their children’s qualified medical and dental expenses. Also, children do not have to be enrolled on an HSA health insurance plan for you to use your HSA bank account.
- Investment. People who have a minimum balance of $2,000 in their HSA bank account may elect to invest in mutual funds. Check with your bank for details.
Who qualifies for an HSA bank account?
Most people who qualify for an HSA health insurance plan may also qualify to open an HSA bank account. The exceptions are below. You do not qualify for an HSA bank account if:
- You are enrolled on a non-HSA health plan.
- You can be claimed as a dependent on another person’s tax return.
- You are a Medicare recipient.
- You received Veterans Administration medical benefits the last three months.
The health savings account can be opened at the bank of your choice. In year 2012, you can deposit up to a maximum HSA contribution limit of $3,100 if you are on an individual HSA health insurance plan or $6,250 if you are on a family plan. The HSA funds can be used for qualified medical expenses for yourself, your spouse, and dependents you can claim on your tax form. Unlike flexible spending accounts, if you don’t use it, you won’t lose it; HSA bank account balances are carried over year to year.