Venturize

Health Savings Accounts (HSA)

Health Savings Accounts, or HSAs, are savings accounts that are combined with a high-deductible health plan. Because high-deductible plans generally cost less than low-deductible plans, HSAs are a good option for employers who cannot afford a comprehensive (low-deductible) health plan. These savings accounts are controlled by the covered employee and are intended to help pay small and routine health care expenses. Both employers and employees may contribute to HSAs.

The total annual contributions to the savings account may be up to 100% of the annual health plan deductible amount and may be used to pay for any qualified medical expenses. Once the deductible amount is reached, additional health expenses are covered in accordance with the provisions of the health insurance policy. For example, an employee might then be responsible for 10% of the costs for care received from a PPO network provider.

Deposits made to an HSA are tax-free to the employer and employee, and money not spent at the end of the year may be rolled over to pay for future medical expenses. Money from the HSA may be withdrawn for any reason, but if it’s not for qualified medical expenses as defined under §213(d) of the Internal Revenue Code, the withdrawal is subject to a 20% penalty and is included in gross income for income tax purposes. The penalty is waived in a few cases: if the beneficiary dies, becomes disabled or reaches age 65.

The contribution limits, out-of-pocket expenses and deductible amounts are indexed to inflation. In 2024, the limits for individuals for HSAs and high-deductible plans are as follows, according to the IRS:

  • HSA contribution limit (employee + employer) = $4,150
  • HSA catch-up contributions (for those 55 and older) = $1,000
  • High-deductible health plan minimum deductibles = $1,600
  • High-deductible health plan maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) = $8,050

The limits in 2024 for families are:

  • HSA contribution limit (employee + employer)= $8,300
  • High-deductible health plan minimum deductibles = $3,200
  • High-deductible health plan maximum out-of-pocket amounts (deductibles, co-payments and other amounts, but not premiums) = $16,100

What is covered?

Comprehensive up to savings account limit, and usually comprehensive above deductible. Employee is responsible for share of deductible after savings account funds are spent.

Whom can you see?

Below deductible: any doctor. Above deductible: benefits generally reduced for services outside the network.

Cost-sharing at time of service

Employee pays with spending account funds, and then out-of-pocket, up to a high deductible (for example, $4,000). Copayments and/or co-insurance apply after deductible.

Monthly premium**

Usually a low-cost option (monthly premiums for high-deductible plans average $550). Policies with higher deductibles typically have lower premiums.

Summary

Good option if employers and employees share an interest in keeping monthly premiums low. Employer must be willing to set up and administer savings accounts; insurance carriers, financial institutions, brokers and other advisers can help. HSAs may be less attractive to older and sicker employees, whose health needs may use up their savings account and require additional out-of-pocket payments.