Who Can and Who Can't Use an HSA Health Savings Account?

Health savings accounts (HSAs) are a powerful tool for managing health care costs, especially for those with high-deductible health plans (HDHPs). However, not everyone is eligible to use an HSA, and there are specific requirements that must be met. In this article, we will explore the eligibility criteria and usage of HSAs.

Health Plan Requirements for HSA Eligibility

To be eligible for an HSA, your health insurance plan must meet certain criteria established by the Internal Revenue Service (IRS). Some of the key requirements for 2018 include:

A. Deductibles

The health insurance plan must have an annual minimum deductible:

$1,350 for individuals $2,700 for families

These amounts might vary depending on the year, as they are indexed annually for inflation.

B. Out-of-Pocket Maximum

The annual out-of-pocket maximum should not exceed:

$6,650 for individuals $13,300 for families

Again, these amounts are indexed annually for inflation and apply only to in-network services.

C. Coverage Structure

The plan must structure the costs in such a way that the individual or family pays for healthcare costs until the deductible is met, with preventative care excluded.

Other Requirements for HSA Eligibility

Here are additional eligibility requirements for an HSA:

1. High Deductible Health Plan (HDHP)

You need to have a qualifying HDHP, which means you pay for all covered services except preventative care before your health insurance kicks in. There should be no copayments or coinsurance until you meet the deductible.

2. Non-HSA Qualified Plans

You cannot be enrolled in any other non-HSA qualified health insurance plans.

3. Flexible Spending Accounts (FSAs)

You cannot have or be eligible to use a general purpose FSA. However, limited-purpose FSAs for dental, vision, and dependent care are allowed if the HDHP does not cover these services.

4. Dependent Status

You cannot be claimed as a dependent on someone else's tax return.

5. Medicare and Medicaid

You cannot be enrolled in Medicare Part A and Part B or Medicaid.

Usage of HSA Health Savings Account

While anyone can use an HSA, it is not practical for everyone to do so. HSAs are most beneficial in the case of a true health emergency rather than frequent minor medical expenses.

Example: Ambulatory ER Visit

A typical ER visit for an ambulatory procedure could cost between $10,000 and $15,000. If the visit results in hospitalization and requires a stay in the ICU or SurgeryRecovery, the cost could be $20,000 per day for 4 to 5 days. Such large expenses can make an HSA a practical solution.

Example: Health Insurance Coverage

While a person might be able to afford these large amounts and put them aside, it might be more sensible to use the funds to purchase health insurance coverage. A $10,000 investment in health insurance could prevent a $50,000 medical bill from becoming a financial burden. Conversely, one could use the $10,000 from the HSA to pay the deductible until the remaining balance is settled.

Conclusion

HSAs are a valuable tool for managing health care costs, but they are not appropriate for everyone. Understanding the eligibility requirements and usage scenarios can help individuals make informed decisions about their health and financial planning.