What is a high-deductible health plan and how does it work?
As its name implies, it's a health insurance plan that has a high deductible — the amount of medical expenses you must pay each year before coverage kicks in. These types of plans are becoming increasingly common. Businesses are more likely to offer them as their only plan or one of the limited options they provide.
While the deductible is high with this type of plan, the premium (the regular fee you pay to obtain coverage) is typically lower than it is for traditional plans.
High-deductible plans don't start paying until after you've spent at least $1,300 (for an individual) or $2,600 (for a family) of your own money on health care expenses.
You can use your HSA to pay deductible expenses, as well as copays and some other health care expenses that are determined by the individual HSA.
Not all high-deductible plans work the same. For instance, plans may pay for preventive services, such as mammograms, before the deductible is met.
It's critical to carefully review the plan's coverage details, including the out-of-pocket maximum — the limit on how much you would have to pay out of pocket for medical expenses in a year.
How much money can I deposit annually into a health savings account?
The Internal Revenue Service sets the contribution limits for HSAs. In recent years, the limits have been about $3,300 for individuals and about $6,600 for family coverage.
Can my employer contribute to my health savings account, too?
Yes, your employer can contribute to your HSA. But the total of your employer's contribution plus your contribution still must be within the contribution limits.
Are health savings accounts similar to flexible spending accounts?
Yes, but there are a couple of key differences. One difference is the amount of unspent money you're allowed to roll over each year.
An HSA allows you to roll over the entire unspent amount, whereas a flexible spending account (FSA) allows you to roll over a maximum of $500 per year.
Another difference is that the money you put into an HSA is yours and you can take it with you if you switch jobs or retire. You can't take money from an employer-sponsored FSA with you if you quit or change jobs. Finally, it's important to know that in most cases you can't have both an HSA and an FSA.
How do I find information about medical costs and quality so I can make informed choices?
It can be challenging. Right now it's difficult to get reliable information regarding the cost and quality of treatment options, doctors and hospitals.
Your employer or health plan may offer some Web-based tools or a phone number to call for some basic information.
The hope is that as health savings accounts and other consumer-directed health care options become more widespread, access to information about cost and quality will expand.
Can I withdraw money from a health savings account for nonmedical expenses?
Yes, but if you withdraw funds for nonmedical expenses before you turn 65, you have to pay taxes on the money and a 20 percent penalty. If you take money out after you turn 65, you don't have a penalty, but you must still pay taxes on the money.
April 08, 2016
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- Health savings account (HSA) vs. traditional health plan. AARP. http://www.aarp.org/health/medicare-insurance/hsa_calculator/. Accessed Feb. 25, 2016.
- Modification of "Use-or-Lose" Rule for Health Flexible Spending Arrangements (FSAs) and Clarification Regarding 2013-2014 Non-Calendar Year Salary Reduction Elections Under § 125 Cafeteria Plans. Internal Revenue Service. https://www.irs.gov/pub/irs-drop/n-13-71.pdf. Accessed March 9, 2016.
- Litchy WJ (expert opinion). Mayo Clinic. Rochester, Minn. March 8, 2016.
- Kulkarni SS. FAQ on HSAs: The basics of health savings accounts. Kaiser Health News. http://khn.org/news/frequently-asked-questions-on-health-savings-accounts/. Accessed March 9, 2016.