How to Qualify for an HSA

by Michael on Nov 21, 2013 · 5 comments

Image of Health Savings

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.

HSA-eligible HDHPs

Now… Returning to the issue of what constitutes an HSA-eligible healthcare plan, an HDHP has to have:

  1. a higher annual deductible than typical health plans, and
  2. 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.

1 Janine @ MoneySmartGuides November 21, 2013 at 8:04 pm

I decided to go with a higher deductible insurance plan last year and was a bit nervous, but I am a generally healthy person, so I ended up saving a decent chunk in my HSA and now I’m ahead of the game!

2 krantcents November 21, 2013 at 8:21 pm

A high deductible health plan is a a great idea if you are cost conscious and do not expect to need to use your plan. It does have a risk if you end up using the hospital portion of your policy because of the high deductible.

3 Michael November 21, 2013 at 8:26 pm

It depends on the details of your plan. In our case, even when we hit the full deductible (and we always do) we still come out way ahead thanks to the substantial premium savings (not to mention the matching funds in our HSA).

4 Jon Maroni November 21, 2013 at 11:56 pm

My wife and I have an HSA through my work, and we really love it. We are young and healthy and right now we are making it work for our advantage. We are almost at the point where we will be able to invest some of our HSA money and potentially use it as another retirement account. We are really glad that we qualify and right now not going to the doctor unless absolutely necessary is working for us.

5 Doug Klein November 30, 2013 at 12:02 pm

Sorry, I don’t understand why the example does not qualify as an HSA. The minimum deductible is $1250/$2500 and the sample plan is $1500/$3500 so what am I missing?

Thank you for the clarification.

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