An HSA is a Health Savings Account, which is simply a bank account that you make tax free deposits into to fund the account then you use these funds to pay for qualified medical expenses. For detailed HSA information refer to IRS publication 969.
The IRS limits the amount you deposit into your HSA annually. The amount you or any other person can contribute to your HSA depends on the type of HDHP coverage you have, your age , the date you become an eligible individual and the date you cease to be an eligible individual.
|HDHP Coverage Type||2020|
|Age 55+ make-up contribution||$1,000|
An HSA qualified High Deductible Health Plan (HDHP) is a major medical health plan that has a specific minimum deductible based on coverage type - self-only or family. The health plan must also have a maximum limit on the deductible and out of pocket expenses.
|HDHP Policy Limits||Self-only||Family|
|Minimum annual deductible: 2020||$1,400||$2,800|
|Maximum annual out of pocket limit: 2020||$6,900||$13,800|
With an HSA qualified High Deductible health plan (HDHP) all covered charges (excluding preventive care) are applied to the deductible first. Unlike copay plans that may have a doctor visit or prescription copayment without having to meet the deductible, an HSA qualified HDHP has the deductible apply first for all covered medical expenses.
HSA health plans are a popular choice for both the employer and the employee due to their affordable premiums, 100% coverage with no deductible for preventive care services, and the ability to pay for medical expenses with tax free money. Here we look at the potential premium savings of a copay style of health plan vs an HSA qualified HDHP.
|HDHP vs Copay Plan Savings||$1,000 Deductible 80% $5,550 OOP Copay Plan||$4,000 Deductible 100% $4,000 OOP HDHP||Savings|
|Monthly Premium 23 Employees||$28,720||$23,215||$5,505|
|Annual Premium 23 Employees||$344,640||$278,580||$66,060|
|Annual Cost with Employer HSA Contribution $1,500 per Employee||$0||$34,500||$31,560|
The example above is a real example for an engineering company with 23 employees in Georgia. The employer had in place a $1,000 deductible Copay plan that included copayments for office visits, prescriptions, urgent care and the emergency room. For hospital and outpatient services the $1,000 deductible applied then the employee would pay 20% coinsurance up to their annual out of pocket maximum of $5,500.
The copay plan was replaced with a $4,000 deductible HSA qualified high deductible health plan that paid 100% after the deductible, so the maximum out of pocket is also $4,000. This plan change saved the company $66,060 in health insurance premiums. The employer used these savings to fund each employee's HSA account $1,500. Even with the employer HSA contribution the company still saved $31,560 in premiums vs the prior copay plan.
The employee benefits by being able to use the employer HSA contribution to pay for the first $1,500 of medical expenses. The remaining $2,500 of the $4,000 deductible would then be the employee's responsibility. The employee can also make contributions to their HSA account to pay for additional out of pocket expenses.