Employees

How to Determine If Your HDHP Is HSA-Qualified

Team Orca
Jan 15, 2024
Blog

Are you trying to figure out if your High Deductible Health Plan (HDHP) is eligible for a Health Savings Account (HSA)? Look no further! In this article, we will break down everything you need to know about HDHPs and HSAs, as well as the qualifying factors that determine HSA compatibility.

If you are buying an individual health plan, you will encounter many plans with a high deductible. Say for example that you are a consumer in San Francisco, California. You will have 53 health plan options available to you. The image below shows a sampling from Blue Shield of California, Anthem, and Kaiser.

Sample Bronze Plans Available to a 27 Year Old Consumer Living in San Francisco, California

Notice that all three of the plans above have a steep $7,000+ deductible. However, only the Kaiser and Anthem plans qualify as HDHPs. The Blue Shield of California plan does not. In order to be considered an HDHP and HSA-eligible, the plan title must explicitly include "HDHP" or "HSA."

Let's show you another example. This 61-year old consumer living in Maine has 210 plans available to them for purchase. Below is a sampling of options from Harvard Pilgrim and Anthem.

Sample Bronze Plans Available to a 61-Year Old Consumer Living in Maine

Again, you'll see that both Harvard Pilgrim Plans have a steep deductible of $7,500. However, neither "HDHP" nor "HSA" are in the title. As a result, neither plan is HSA-eligible. The Anthem plan, which does have "HSA," in its title is a HDHP and HSA-eligible.

If Your Buying a Bronze Plan, Should You Always Opt for a HDHP?

Not necessarily. Some markets have what's called an "Expanded Bronze" plan that offer lower co-pays and even a $0 deductible. The monthly premiums of these Bronze plans are also lower cost than Silver or Gold plan options with comparable deductibles. The "Expanded Bronze" plans will enable you to see the doctor for a lower price than a HDHP, which many consumers find helpful who have "medium use" health care needs.   However, there's always a catch. The "Expanded Bronze" plans typically have higher co-pays and co-insurance on bigger ticket expenses like hospital stays or emergency room visits. You are also typically ineligible to contribute to a Health Savings Account (HSA).

HDHPs tend to be most beneficial for individuals who are typically very healthy and do not require frequent medical attention. However, the lower premiums of HDHPs come with a trade-off – you will have to pay a higher deductible before your insurance coverage kicks in. A deductible is the amount you must pay out-of-pocket for healthcare services before your insurance starts to cover the costs. For example, if you have a $7,000 deductible, you will need to pay $7,000 for eligible medical expenses before your insurance begins to contribute.

The Benefits and Drawbacks of HDHPs

Let's be honest. HDHPs were designed to save employers money. That said, HDHPs are also designed to encourage individuals to take greater financial responsibility for their healthcare expenses. The rationale is that if you have to pay out-of-pocket for health care services then you're more likely to become a proactive in shopping for the best deal.

Even still, HDHPs offer several benefits that make them an appealing choice for many individuals. These include:

  • Lower Monthly Premiums
  • Tax-Advantage Savings Account via a HSA
  • Free Preventive Care

The drawbacks include: 

  • High Deductible
  • Potential Higher Cost Medical Care (if you end up needing it)
  • Increased Possibility of Delaying or Foregoing Necessary Medical Care

Whether or not an HDHP is right for you often comes down to personality. Are you a risk taker? Or do you prefer everything covered? Do you want to save money? Or are you okay spending a bit more if it gives you peace of mind? HDHPs can be a cost-effective option for individuals who are generally healthy and want to save on their monthly healthcare expenses. However, it's essential to carefully consider the trade-offs, such as higher deductibles and potential out-of-pocket costs, before choosing an HDHP.

Demystifying Health Savings Accounts (HSAs)

Now, let's dive into the world of Health Savings Accounts (HSAs). HSAs are tax-advantaged accounts that can be used to pay for qualified medical expenses, both now and in the future.

What You Need to Know About HSAs

HSAs offer flexibility and control when it comes to managing your healthcare expenses. You can contribute pre-tax dollars to your HSA, reducing your taxable income. These contributions can then be used to cover a wide range of medical expenses, including doctor visits, prescription medications, and even certain over-the-counter items.

One of the key advantages of HSAs is that the funds roll over from year to year. Unlike flexible spending accounts (FSAs), which have a "use-it-or-lose-it" policy, the money in your HSA stays with you, giving you the ability to save for future healthcare expenses and build a nest egg for retirement.

Maximizing the Benefits of HSAs

If you have an HSA-compatible HDHP, you can contribute up to a certain limit each year (as determined by the IRS) to your HSA. By maximizing your contributions, you can make the most of the tax advantages and ensure you have funds available when you need them.

You don't have to use your HSA funds immediately. You can let them grow over time, allowing them to accrue interest and potentially earn investment returns. This long-term approach can be especially beneficial if you anticipate higher healthcare expenses down the road.

To open and contribute to an HSA, you must meet specific eligibility criteria. You cannot be enrolled in Medicare and cannot be claimed as a dependent on someone else's tax return. Additionally, you cannot have any other non-HDHP coverage, such as a health reimbursement arrangement (HRA) or flexible spending account (FSA).

Compliance and Regulations for HSAs

HSAs are subject to various regulations set by the IRS. It's crucial to understand these rules to ensure that you stay in compliance and avoid any penalties. For example, HSA funds can only be used to pay for qualified medical expenses. If you withdraw funds for non-medical expenses before the age of 65, you may incur taxes and potential penalties.

Maximizing Contributions to Your HSA

Contributing the maximum amount allowed to your HSA can provide significant tax advantages. For the current year, individuals can contribute up to $4,100, while families can contribute up to $8,300. Individuals age 55 and older can also make catch-up contributions of up to $1,000. By maximizing your contributions, you can offset your healthcare expenses with pre-tax dollars, saving you money in the long run.

Now that you have a comprehensive understanding of HDHPs, HSAs, and how to determine if your HDHP is HSA-qualified, you can confidently make informed decisions about your healthcare coverage. Remember to consult with a Venteur benefits specialist or tax advisor to ensure that you are taking full advantage of the benefits and staying in compliance with all regulations. Happy saving and stay healthy!

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