In response to my recent post about high deductible health insurance plans, a reader named Mike asked the following:
“I was wondering if you know what exactly qualifies as an HSA-compatible HDHP?”
This is an excellent question. In Mike’s case, it was motivated by confusion on the Obamacare marketplace. In short, he saw numerous plans that seemed to meet the HDHP criteria, but were not listed as being HSA-compatible.
Before we go any further, I’d like to step back and take a general look at the rules surrounding HSA qualification. For the record, the following is largely based on information contained within IRS Publication 969.
Qualifying for an HSA
To qualify for an HSA, you have to be covered under an HDHP (more on this below), you can’t have any other health coverage, you can’t be enrolled in Medicare, and you can’t be claimed as a dependent on someone else’s tax return.
Note: You can still have coverage for a specific disease or illness, hospitalization coverage that pays a fixed amount per day, coverage for accidental injuries, disability coverage, dental and vision coverage, and long-term care insurance.
Assuming that you meet the above criteria, you are considered to be an “eligible individual” and are free to contribute to an HSA. This is true even if your spouse has non-HDHP coverage — as long as that coverage does not apply to you.
Now… Returning to the issue of what constitutes an HSA-eligible healthcare plan, an HDHP has to have:
- a higher annual deductible than typical health plans, and
- a maximum limit on out-of-pocket medical expenses.
For 2014, these limits will be a minimum deductible of $1,250/year ($2,500/year) for individual (family) coverage and a maximum out-of-pocket limit of $6,350/year ($12,700/year) for individual (family) coverage.
Note: The out-of-pocket limit includes all money paid toward the deductible as well as things like coinsurance payments, but it does not plan premiums.
Despite their high deductibles, HDHPs are allowed to provide coverage of preventive care with a lower (or no) deductible. This includes things like periodic checkups and associated diagnostic procedures, prenatal and well-child visits, immunizations, various disease screening services, etc.
Also, if your plan uses a specific network of providers, the above limitations apply to in-network, as opposed to out-of network, coverage. Thus, as long as the in-network numbers are compliant, your plan should be HSA-eligible.
Another little wrinkle applies to plans with separate deductibles for individuals vs. families. In such cases, you have to look at the lower deductible to determine whether or not the plan qualifies.
For example, your plan might have a $3,500/year family deductible that’s capped at $1,500 per individual. In that case, the plan would not be HSA-eligible because the deductible for any one family member is below the lower limit for family coverage.
Oh, and I almost forgot about prescription coverage… Yes, you can have prescription coverage so long as it doesn’t provide benefits until the minimum annual deductible has been met. If you receive prescription benefits before the deductible is met, you’re not eligible for an HSA.
So… Assuming that you and your health insurance plan meet all of the above criteria, you should be able to have and contribute to an HSA.