HSA Guide

Welcome to SavingsOak HSA Guide

This is a comprehensive guide to learn about the basics of Health Savings Accounts and how to use them. This guide will help individuals and families that have a High Deductible Health Plan (HDHP) or are considering enrolling in one to lower their healthcare costs.

Terms to Know

As you are shopping for healthcare plans, you should understand some basic terminology.

  • Deductible The amount you pay before your health insurance plan begins to pay.
  • Premium The amount you pay every month for the plan you’ve chosen. Individuals and families will pay this amount whether or not they visit a doctor.
  • Co-pay The fixed amount of money you pay for a medical service. This amount can vary for the type of service you receive.
  • Co-insurance Once you have met your plan’s deductible, you will begin to pay a shared amount of the cost with your health insurance every time you get a medical service. This is generally presented as a percentage.
  • Out-of-Pocket Maximum To protect you in case you have a health crisis, there is something called an out-of-pocket maximum. This is the absolute total you can be charged for medical services in a year. Once you reach the out-of-pocket maximum, your health insurance plan begins to pay 100% of the costs. This does not include premiums, out-of-network providers, and costs that your plan does not cover.

Putting it Together

Carmen has a health insurance plan. Every month, she pays a premium of $400, whether or not she sees a doctor. Her plan’s deductible is $2000, which means that she pays 100% of the medical bills for any doctor she sees until she reaches that magic amount of $2000. After that, she pays a shared amount, co-insurance, with her health plan. They pay 70% of any medical service while she is responsible for 30% of the bill. When she sees a doctor, she also has to pay a co-pay–usually $25 to see her primary care doctor and $35 for a specialist. If she has to visit the doctor more than usual in a given year, she could reach her out-of-pocket maximum–which is $8000. At that point, the health insurance plan will pay all of her costs. However, she is still responsible for her monthly $400 premium.

How Do I Choose The Right Health Plan For Me?

With all the options out there, you may be thinking: Which health plan is right for me?
When comparing plans side by side, it is important to take a look at your medical needs and possible costs you will have. While you can’t predict the future, you are most likely aware of how often you go to the doctor and what types of doctors you see.

Important Questions to Ask Yourself:

  • • How much have you seen the doctor in the past?
  • • Do you frequently see specialists?
  • • If so, what type of specialists do you see?
  • • Do you have a chronic health condition?
  • • Do you have any major medical costs coming up such as surgery or childbirth?

Once you have an idea of your medical costs, you can take a look at the health care plans that best fit your needs.

If you are healthy and rarely visit the doctor, an HDHP may be the right choice for you. If you tend to visit the doctor more frequently, you may need to look into a plan that has higher premiums, but lower deductibles. It really depends on finding the right healthcare coverage for your needs.

What is a High Deductible Health Plan (HDHP)?

A High Deductible Health Plan (HDHP) is a health plan that has a higher deductible and a lower monthly premium. You end up paying for more of the health costs yourself before insurance starts to pay. This can be beneficial if you are a person who rarely goes to the doctor and is looking to save some money on healthcare costs.

The IRS defines an HDHP as any plan with:

  • • A deductible of at least $1,400 for an individual or $2,800 for a family (2020 & 2021)
  • • Total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $6,900 for an individual or $13,800 for a family.

Okay, so now we’ve put down some foundational knowledge. Let’s learn more about health savings accounts.

What is a Health Savings Account?

A Health Savings Account (HSA) is a tax-advantaged medical savings account that is an easy way to help you save for the rising cost of health care. To be eligible to open an HSA, you need to be enrolled in a qualifying High Deductible Health Plan (HDHP).

An HSA account holder can pay for out-of-pocket qualified medical expenses for themselves and their dependents.

You can use untaxed dollars in an HSA to pay for copayments, deductibles, and other medical expenses that will reduce the overall cost of healthcare. Some people use it as a retirement account as well. Because, why not factor in the ever-increasing costs of healthcare into your retirement plans?*

*Please be sure to consult with your tax advisor as this guide is not meant to replace investment or tax advice.

Related Documents: IRS Publication 969

How Do I Know What is a Qualified Medical Expense?

Doesn’t the idea of tax-free medical expenses sound great? But how do you know counts as a qualified medical expense? We have a handy tool to help you with that.

Related Documents: IRS Publication 502

Key Benefits to an HSA

HSAs have amazing benefits, such as being an effective way to save for retirement. However, the most notable one is the Triple Tax Advantage, which is that:

    • • Contributions to your HSA are tax-free
    • • Money grows in your HSA tax-free
    • • Withdrawals from your HSA tax-free (as long as it’s a qualified medical expense)

Not only that, but the money you put in your HSA will roll over year after year. It doesn’t have the Flexible Spending Account’s (FSA) use-it-or-lose-it model.

**In New Jersey and California, HSA contributions are taxed.

Contribution Limits

Each year the IRS sets the max amount you can contribute to your HSA.

The 2022 Annual Contribution Limits are:

  • • $3,650 for individuals for self-only HDHP plans
  • • $7300 for individuals in family plans
  • • Catch up contributions are $1000 for individuals who are 55 years old by Dec 31, 2022

For comparison, the 2021 Annual Contribution Limits are:

  • • $3,600 for individuals for self-only HDHP plans
  • • $7200 for individuals in family plans
  • • Catch up contributions are $1000 for individuals who are 55 years old by Dec 31, 2021

Related Documents: IRS Revenue Procedure 2021-25