An HSA qualified plan is a high deductible health insurance plan (HDHP) that follows specific IRS rules (i.e., it’s not just any plan with a high deductible). An HDHP doesn’t allow copays for doctor visits or prescription drugs before the deductible. Instead, the enrollee pays for all non-preventive care until the deductible is met. Covered charges are then paid (partially or in full, depending on the plan) after the deductible is met. Certain preventive services are paid 100% with no cost sharing. The covered expenses will be discounted according to negotiated rates if the deductible has not been met.
HSA-qualified plan participants have the option to open an account that is a lot like an IRA, except that money can be used to pay for qualified health care costs. This is the Health Savings Account, or HSA, and is like a tax-deductible savings account with unlimited investment options. Money in the HSA can be used to reimburse out-of-pocket medical expenses. For example, expenses before the deductible or non-covered expenses like acupuncture, vision care, or dental care can be reimbursed. The money the participant deposits, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free. Unused balances roll over from year to year — there is no “use it or lose it” rule for HSAs.
There are unlimited investment options available for your HSA. Check with your local bank and ask friends or co-workers for recommendations. Fidelity and UMB are two competitive administrators with a wide range of investment options.
The 2 Parts of an HSA Plan
Part 1: The HSA Qualified High Deductible Health Insurance Policy
The IRS has specific rules for high-deductible health plans (HDHPs). In addition to not paying for non-preventive care before the minimum deductible is met, the following rules apply:
- In 2023, the plan must have a deductible of at least $1,500 for an individual ($3,000 for a family) and a maximum out-of-pocket limit of no more than $7,500 for an individual ($15,000 for a family).
- In 2024, the plan must have a deductible of at least $1,600 for an individual ($3,200 for a family) and a maximum out-of-pocket limit of no more than $8,050 for an individual ($16,100 for a family).
You can enroll in an HSA-qualified health insurance plan and opt to skip the health savings account. By doing this, you would just have a high-deductible health insurance plan on its own. However, you’re required to have an HSA qualified HDHP in order to set up a Health Savings Account. In addition, Expanded Bronze Plans can be HSA qualified.
Part 2: The Tax-Exempt Individual Health Savings Account
You can have a qualified health insurance policy on its own, so the savings account isn’t required. The savings account is designed to cover routine medical expenses and provide savings. In any given year, it is possible to deduct the amount you contribute to your Health Savings Account from your gross income. However, if your HSA is established through your employer, it is highly likely that your contributions to your HSA are being deducted from your paycheck pre-tax, thereby preventing them from being deducted on your tax return.
Your HSA contributions will reduce your MAGI, potentially allowing you to qualify for higher ACA subsidies. See how to calculate MAGI for ACA subsidies or tax credits.
The 2023 HSA contribution limit is $3,850 for self-only coverage and $7,750 for family coverage (“family” just means you have at least one other family member on your plan; it doesn’t mean that the entire family has to be on the plan).
The 2024 HSA contribution limit is $4,150 for self-only coverage and $8,300 for family coverage.
People over the age of 55 are allowed an extra $1,000 catch-up contribution (this amount is not indexed, so it doesn’t change from one year to the next).
If you change to a non-HSA-qualified plan later on, you can still keep all the money in the account itself. However, you just can’t contribute to the health savings account anymore, unless you once again enroll in an HSA-qualified HDHP. You may also still spend the money in your HSA on anything the IRS Publication 502 considers a legitimate health insurance expense.
HSA Limits by Year
Don’t put it off!
By setting up an Health Savings Account now, you can start accumulating toward your retirement in your Health Savings Account. You can use the money you might have otherwise paid in higher premiums for a non-HDHP to fund your account, and those premium savings will then accumulate in your account instead of going to an insurance company. Compare HSA premiums to the price of a typical health insurance plan to see how much you can save. When you take the money that would have gone to the insurance company and put it into an interest-bearing account, that money will keep building until you choose to withdraw it.
It’s Not Too Late To Start
If you have been putting off getting a Health Savings Account, premiums are significantly lower than traditional health insurance plans with co-pays and low deductibles. You can fund the account using the money saved on premiums. The money left over in your account is yours to keep in any given year, you don’t need to reimburse yourself for medical expenses. And, you still have very low exposure because once you meet your deductible and out-of-pocket maximum, the health insurance company pays your medical expenses.
View Frequently Asked Questions about HSAs.
Qualifying Medical Expenses
*See IRS Publication 502 for a list of qualifying HSA expenses. The certificate contains all terms and conditions of coverage, including benefits and exclusions. Insurance Shoppers doesn’t render tax or legal advice. Federal and state regulations are subject to change. We recommend licensed professionals if you require legal or tax advice.
