A Health Savings Account (HSA) plan that works in conjunction with the compatible High Deductible Health Plan (HDHP) are the best example of the how health insurance coverage has adapted to the needs of the Texas consumer. HSA plans have provided consumers with a more stable premium, more direct control over health care spending, and tax-deferred savings opportunities as compared with more traditional plans. Because HSA plans are still relatively new to the market, many consumers are not aware of the advantages of the HSA plan and how the coverage differs from other coverage options.
HSA plans combine a more traditional type of coverage with the tax saving features of an Individual Retirement Account (IRA). The traditional coverage from an HSA looks very much like coverage of 20 to 30 years ago. The HSA plan has a single deductible, regardless of whether the insurance is for one person or a family with two or more insured members. The insured member or members will self-insure up to the plan deductible for all claims, including prescriptions. If an HSA plan for a family has a $5,000 deductible, the insured member is responsible for the first $5,000 in claims. These claims are billed at the negotiated network discounted rate but are paid by the insured member. Once deductible has been met, there can be a coinsurance amount ranging from $500 to $6,000 depending on the plan and the carrier.
What qualifies as an HSA compatible High Deductible Health Plan (HDHP)?
In order to take advantage of the tax-deductible benefits of an HSA plan, the health insurance coverage must meet several conditions as established by the IRS. These conditions include:
- Deductible: The annual deductible for an HSA qualified plan must be at least $1,400 for an individual or $2,800 for a family, regardless of the number of family members.
- Maximum Out-of-Pocket Maximum: The maximum out-of-pocket expense an individual can experience annually cannot exceed $7,000. A family cannot experience out-of-pocket expenses greater than $14,000. Both of these amounts assume in-network benefits. The maximum out-of-pocket expense is the amount the insured member will pay before the insurance carrier applies any coinsurance or copay payments.
- First Dollar Coverage: First dollar coverage is an insurance industry term that describes claims payments that are made without the need to meet the plan deductible. The policyholder uses the plan’s copay or coinsurance when the claim is filed, regardless of the deductible. Since HSA plans require the deductible to be met, even with prescription benefits, only specific preventative care claims are eligible for first dollar coverage.
Can an IRA work with an HSA?
Individuals with an Individual Retirement Account (IRA) are restricted in their withdrawals of funds for unexpected, large medical expenses. Penalty-free withdrawals from an IRA can only be made for the amount of medical expense that exceeds 10% of the individual’s adjusted gross income. However, individuals covered by an HSA plan can complete a one-time transfer from an IRA to an HSA without incurring income tax or early withdrawal penalties. The withdrawal from an IRA to an HSA is limited by the maximum contribution that can be made to an HSA in that tax year. Any amount transferred between an IRA and an HSA cannot be deducted as a new contribution to the HSA, and the transfer can only be made one time. If the individual does not maintain the HSA for 12 months following the transfer, the amount is subject to income tax and a 10% early withdrawal penalty.
What have been the significant changes in HSA plans?
Prior to the reforms under the Medicare Modernization Act of 2003 and the Tax Relief and Health Care Act of 2006, the adoption of HSA plans was very limited. HSA plans originated as Archer Medical Savings Accounts (MSA) and were created as part of the Health Insurance Portability and Accountability Act (HIPAA) of 1996. MSA plans were only available to self-employed individuals. The amount an individual could contribute to an MSA was limited by the policy deductible, and the tax deductibility of contributions to the MSA was prorated if made after January.
The HSA was created in the Medicare legislation of 2003 and became a very popular health insurance option. HSA plans differed from MSA plans because policyholders no longer had to be self-employed to qualify for an HSA.
Additional changes were made to the HSA plan with the 2006 legislation. First, the amount of the tax-deductible contribution was no longer limited to the plan deductible. The tax-deductible contribution became an amount up to a dollar limit established by the IRS. Another major change was the elimination of the prorated contribution. An HSA contribution became fully tax deductible regardless of when the contribution was made as long as the HSA plan had a December 1st effective date in the tax year for which the contribution was being claimed. The third significant change allowed a one-time transfer from an existing IRA to an HSA without payment of income tax or penalty.
HSA plans offer Texas consumers a coverage option with a competitive premium and a tax savings advantage. HSA plans provide insured members the opportunity to more closely manage their health care dollars and enjoy the benefits of tax-deferred savings.
STATESIDE CAN HELP!
Stateside Insurance Services, since 2003, has focused on providing comprehensive health insurance information, responsive customer service and expert industry knowledge for Texas consumers. Stateside has annually been recognized by health insurance carriers and the Health Insurance Marketplace as a Top Producer in Texas.
Whether the health insurance policy is for an individual, family, small business or supplemental Medicare coverage, Stateside dedicates the time, and our deep industry expertise, to ensure our clients have identified the best health insurance plan for their specific needs.
Stateside is available to answer any general questions regarding your coverage options, can provide a subsidy determination, and even assist in creating and submitting online applications for ACA compliant plans during an Open Enrollment or throughout Special Enrollment periods.
By using the Telephone Appointment System, clients can take advantage of scheduling a health insurance discussion when convenient for their schedule. During Open Enrollment phone appointment availability is expanded to include extended hours and weekends.