High deductible health plans are medical plans that once offered substantially lower premiums in exchange for higher deductibles. The first dollar costs (deductibles) are borne by the insured(s) so the insurance company was able to offer coverage at lower costs. With the introduction and evolution of the Affordable Care Act (ACA), premium costs have steadily risen due to the guaranteed-issue requirement and the cost differences of HSA vs non-HSA high deductible health plans have mostly disappeared. However, the benefit of an HSA plan is still valuable to those who who are looking for a tax free savings vehicle separate from their IRA, SEP, 401k, and 403b plans. There are many different types of high deductible plans, some with 100% coverage after the deductible is met, and some with additional costs in the form of co-insurance after the deductible is met.
Some high deductible health plans (HDHP) are HSA qualified, which is an acronym for Health Savings Account, an IRS approved medical savings account that works much like a retirement IRA, except that the money is saved for the purpose of medical expenses. Click here for 2020 IRS Approved Medical Expenses.
The IRS requirements for HSA qualified plans for the years 2019, 2020 and 2021 are listed below.
|Year||Minimum deductible (single)||Minimum deductible (family)||Maximum out-of-pocket (single)||Maximum out-of-pocket (family)|
|Year||Contribution Limit (Single)||Contribution Limit (Family||Catch-up Contributions (50+)|
Is an HSA plan right for you and your family? It depends. Have you maxed-out your tax deferred income savings accounts (IRA's, 401k's, SEP's)? Are you looking to set aside additional tax deferred income that can be used for medical expenses right away tax free or for any purpose after age 65 subject only to income tax at withdrawal?
The money you invest in your HSA is yours forever. It is designed to help you cover the individual or family medical deductible, and uncovered medical expenses should it ever become necessary. However, if you never use it, it will continue to grow at a set interest rate and will be available to you when you need it. Many HSA savings accounts also offer an investment feature in the stock market for those who may want higher earning potential on their savings.
A Health Savings Account is an IRS approved tax free savings account that allows you to contribute specific amounts of money (for either an individual or family) per year to use towards approved medical expenses (including medical plan deductibles).
Contributions are tax deductible, interest accrues tax deferred, and withdrawals for approved medical expenses are tax free. After age 65 any money accumulated in the HSA account can be withdrawn for any use whatsoever, and if used for approved medical expenses is still tax free.
When used in conjuction with a high-deductible health insurance plan, it often allows individuals and families another way to shelter/reduce income from annual income taxes and set up permanent personal savings that can be used for IRS approved medical expenses now and in the future.