High-Deductible Health Plans and Health Savings Accounts
High Deductible Health Plans (HDHPs) have higher deductibles than traditional health plans. The higher deductible usually means the health plan premiums are lower, but you pay more out-of-pocket before the plan pays anything toward the cost of most care. On NYC Health Insurance Link, plans with deductibles of $1,000 or more are considered HDHPs and their deductibles appear in red on the plan description pages.
Health Savings Accounts (HSAs) are tax-advantaged savings accounts that can be opened when you enroll in a qualified HDHP (one that meets certain federal requirements). HSAs are tax-free: money put in the HSA and taken out to pay for qualified medical expenses is not taxed. Not all plans with high deductibles on NYC Health Insurance Link are HSA-qualified plans.
Whether a high-deductible health plan and health savings account combination is right for you will depend on your individual circumstances, such as your income and health care needs. Individuals with higher incomes and fewer health care needs may find that HDHPs and HSAs save them money. Research conducted on a national level suggests HDHPs may not be a good choice for people with greater health care needs, larger families, and lower income families.
HSA-Qualified High Deductible Health Plans
Currently in New York, HSA-compatible HDHPs are widely available for small businesses and sole proprietors, but are available to individuals only through Healthy NY.
If you enroll in a HDHP you have to pay the full deductible before the health plan begins to help with the cost of most health care services. Some plans may still not pay for 100% of health care costs even after the deductible is met.
Federal rules allow HSA-qualified plans to cover certain preventive health care services before the deductible is met. This “first dollar” coverage is typically provided for preventive services, such as well child care visits, prenatal care or periodic health evaluations.
Prescription drugs are not considered preventive care, so enrollees must meet the plan’s high deductible before the plan will start paying for drugs.
Health Savings Accounts
In order to be eligible for an HSA, you must meet certain requirements. One of these requirements is enrollment in an HSA-qualified high deductible health plan. For 2012,
federal law requires that the deductible be at least $1,250 for individual coverage
or $2,500 for a family plan.
The money in an HSA belongs to the individual, and whatever is not spent at the end of the year can “roll over” or stay in the account for future use. HSA funds also can be invested like Individual Retirement Accounts, and investment earnings are not taxed. Banks, credit unions, and other institutions that hold the HSA often charge a fee for their services.
Contributions to the HSA can be made by the individual, employer, and other individuals, such as family members, on behalf of the enrollee.
Contributions are tax-free, meaning contributions made by the individual can be deducted and employer contributions are excluded from employees’ income and wages.
These payments can be made in any frequency desired but must not exceed the federal limits, which are adjusted each year for inflation.
HSA money used for non-qualified medical expenses is subject to income tax and, with a few exceptions, a tax penalty.
HSAs are one type of health-related savings account. For more information on HSAs and other types of accounts, such as flexible spending arrangements or health reimbursement arrangements, visit this website: http://www.irs.gov/publications/p969/ar02.html.