HSA Individual Health Insurance

[A health savings account has nothing to do with the health insurance coverage you buy except for one thing. That is, it is necessary to have the right type of health insurance first before a health savings account can be opened. That type of health insurance coverage is called "qualifying" because it qualifies you to be able to get the tax deduction that comes with having a health savings account, if you decide to open one at any time.

A qualifying health insurance policy is nothing special except that it must have a structure that falls within the limits allowed, e.g., the deductible cannot be too low nor too high. It can have no copays for doctor visits or prescriptions or for any other qualifying expense. So a qualifying plan is a somewhat simple health insurance coverage. It is a sort of coverage that has been around for many years before the tax code introduced a tax break for that type of coverage structure.

There is no need to ever open a health savings account. Having a health savings account qualifying policy is not a reason to open an account. The account would be opened only if you can and want to take advantage of the tax deduction. Irrespective of the available tax deduction, you may just want that type of health insurance because it is not worth paying more per month to have copays in your health insurance coverage.

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It is a common misunderstanding that the health savings account is "combined with" or "coordinated with" the health insurance. It is not.

If you wanted to, you could wait until you had a big enough medical bill, and then open an account. You could deposit the amount of the bill into the account and then pay the bill from that account. The result would be, you are not using a health savings account to save and so have a savings balance, but you open an account just to get a tax deduction that you otherwise would not have. You could even close the account after you have used it to get the tax deduction for the expense of that particular incident.]

What is a Health Savings Account (“HSA”)?

A Health Savings Account is an alternative to traditional health insurance; it is a savings product that offers a different way for consumers to pay for their health care. HSA individual health insurance enables you to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis.

You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSA individual health insurance. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.

You own and you control the money in your individual health insurance HSA. Decisions on how to spend the money are made by you without relying on a third party or a health insurer. You will also decide what types of investments to make with the money in the account in order to make it grow.

What Is a “High Deductible Health Plan” (HDHP)?

You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, your HSA is available to help you pay for the expenses that your individual health insurance does not cover.

In order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,000 (self-only coverage) or $2,000 (family coverage). The annual out-of-pocket (including deductibles and co-pays) cannot exceed $5,100 (self-only coverage) or $10,200 (family coverage). HDHP individual health insurance can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and copays & coinsurance) for non-network services.

How can I get a Health Savings Account?

Consumers can sign up for HSAs with banks, credit unions, insurance companies and other approved companies. An employer may also set up a plan for employees as well.

How much does an HSA cost?

An HSA is not something you purchase; it’s a savings account into which you can deposit money on a tax-preferred basis. The only product you purchase with an HSA is a High Deductible Health Plan, an inexpensive individual health insurance plan that will cover most of your medical expenses should your expenses exceed the funds you have in your HSA.

Source document:   US Dept. of Treasury HSA - Frequently Asked Questions

¶ Nothing here constitutes advice or recommendation of any nature, whether legal, tax, financial planning or otherwise. The comments above represent only the author's understanding of individual health insurance and may be incorrect or out of date.

HSA Individual Health Insurance