Health Savings Account (HSA)

Employee HSA Benefits

office employees stretching

Health Savings Account (HSA)

What is an HSA?

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.

  • Tax Free Savings. With an HSA any contributions are not subject to federal or state taxes, and as long as you use the funds to pay for qualified medical expenses you will never pay any taxes on the distributions. Read more about the HSA tax advantages with this Forbes article on the seven ways to maximize the benefits of HSAs.
  • Who is eligible to have an HSA? To be eligible to open and fund an HSA you must be insured with an HSA qualified high deductible health plan (HDHP) - see below for details. You can't have any other health coverage or be enrolled in Medicare, and you can't be claimed as a dependent on someone else's tax return.
  • What are HSA qualified expenses? You can use the funds in your HSA to pay for out of pocket expenses on your health plan such as deductibles, copayments and coinsurance. Other eligible expenses include dental, orthodontia and vision expenses. For a complete list refer to IRS publication 502.

HSA Contribution Limits

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
Self-only $3,550
Family $7,100
Age 55+ make-up contribution $1,000

What is an HSA Qualified HDHP?

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
HDHP Policy Benefits

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.

Routine preventive care benefits are permitted to be covered at 100% with no deductible. An annual routine physical with a primary care doctor, and a well women check-up are both covered under the HDHP.
With non-HSA health plans the annual maximum out of pocket limit for 2019 is $7,900. The annual maximum out of pocket with a HDHP for 2019 is $6,750 - a difference of $1,150!
A HDHP will have either an embedded deductible or an aggregate deductible. The difference between the two deductibles only applies when an employee insures one or more dependents on their policy. With an embedded deductible HDHP each family member has their own individual member deductible, and the family maximum deductible limits the combined total for all family member's deductible expenses. With an aggregate deductible HDHP the individual member deductible does not apply and all family member's deductible expenses accumulate together until the one family aggregate deductible is met.

So for example, if a HDHP has a $5,000 member deductible and a $10,000 family maximum deductible - on an embedded deductible plan the $5,000 member deductible applies to each family member, where with an aggregate deductible plan the $5,000 member deductible does not apply and all family member's deductible expenses accumulate together to meet the one $10,000 family deductible.

The downside of an aggregate deductible plan is that one family member could be responsible for the whole family aggregate deductible. Aggregate deductible plans are typically more affordable than embedded deductible plans since the family assumes a greater deductible responsibility.

Is an HSA a good option for your company?

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.

HSA Insurance Carriers in Georgia