More than three quarters of large employers now offer a high deductible health plan as an option for employee health insurance. For an increasing number of employers, it is the only choice. If you are new to high deductible health plans, now is the time to familiarize yourself with a health savings account and its benefits for you.
A health savings account (HSA) allows you to pay qualified medical expenses (including the plan deductible) or save it for future expenses. HSAs offer triple savings: tax deductible contributions, tax free interest and investment earnings, and tax free distributions when used for qualified medical expenses. Unlike traditional flexible spending accounts (FSA), you are not required to use the funds each year; they can accumulate over time. You must be a participant in a high deductible plan for yourself or your family to contribute to an HSA.
In order to be considered a qualified high deductible health plan, the minimum deductibles must be at least $1300 for individual coverage and $2600 for family coverage in 2015. Maximum out-of-pocket limits for in network services are $6450 for individual coverage and $12,900 for family coverage. This coverage must be your only overall health insurance plan.
The IRS sets limits for HSAs each year. For 2015, and individual can contribute up to $3350 to an HSA; a family is eligible to make a $6650 contribution. If you are 55 or older, you can contribute an additional $1000 as a “catch-up” contribution to an HSA. There are no income limitations for contributions to HSAs. It is also possible to transfer one year’s contribution from an IRA to an HSA. HSAs are portable, and can be transferred at any time or rolled over annually. Keep in mind, however, that you cannot participate in both an HSA and a FSA. Many employers have begun making contributions to HSAs to encourage employee participation, so take a close look at your employer benefit plans to see if this is available.
HSAs operate on a calendar year. If you are a late enrollee or a new hire during the year, you can still make contributions to an HSA provided you are participating in a high deductible health plan on December 1st. You would have to remain in the plan for a “testing period”, which starts with that December and continues through thirteen months until the next December. Should you not stay in the high deductible health plan, your contributions would no longer be tax free and would also be subject to a 10% penalty tax. Other proration rules apply for plan participants who aren’t in the plan on December 1st.
HSAs are often referred to as health care IRAs. If you’re a participant in a high deductible health plan, take advantage of the opportunity to save for health care expenses both now and in retirement.
For additional information, contact EAB HealthWorks.