The Basics - Qualifying Plans - HSA Contributions - HSA Investments - HSA Distributions

Q: How do I set up my Health Savings Account?

The Basics:

- What is a Health Savings Account?
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An HSA (health savings account) works like an IRA (individual retirement account), except that the money contributed can only be used to pay health care costs.  Participants first enroll in a high-deductible health insurance plan.  Then a tax-deductible savings account may be opened to store money that can be used to pay current and future medical expenses.

The money deposited, as well as the earnings, is tax-deferred.  The money can then be withdrawn to pay for qualified medical expenses tax-free.  Unused balances roll over from year to year.

Everyone (not just the self-employed or small business owners) with a qualified high-deductible health insurance plan is eligible for a tax-deductible HSA.

Traditional vs. HSA Plan

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- Why High Deductible Health Insurance?
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To get the benefits of an HSA, the law requires that the savings account be combined with high-deductible health insurance. High-deductible health insurance plans have premiums that typically cost less than traditional low-deductible health insurance coverage because the insurance company does not have to process and pay claims for routine, low-dollar medical care, until the deductible of the plan has been met.

A high-deductible health plan (HDHP) is a health plan with a minimum deductible of $1,250 for self-only coverage and $2,500 for family coverage.  The maximum out-of-pocket expenses for allowed costs must be no more than $6,350 for self-only coverage and no more than $12,700 for family.

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- How does a Health Savings Account work?
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HSA Flow Chart

You obtain coverage under a qualified health insurance plan with a minimum deductible of $1,250 for singles and $2,500 for families.  You are then allowed to deposit up to $3,300* for singles or $6,550* for families into your HSA.  Older Americans can save even more, with the option to deposit an additional $1,000 per year.

You do not have to itemize your deductions on your federal income taxes to deduct your contributions to an HSA.  You can use the health savings account to pay for your low-dollar medical expenses, or those that are not covered by the health insurance plan.  Once you meet the deductible of your health insurance plan, the health insurance company will pay for a part or all of your medical expenses, as defined in the policy.

*$3,300 & $6,550 are the limits for 2014.

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- How much does HSA-qualified health insurance cost?
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Because HSA-qualified health plans all have high deductibles, they typically have lower premiums than traditional health insurance plans.  The plans are individually priced based on age, residence, health history, build, date of enrollment, type of plan, deductible, PPO network options selected, billing method and other services.  Our instant quote system will quickly provide you rates on the plans available in your area.

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- I have some medical history.  How do I know if I will qualify for a high deductible HSA Insurance plan?
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Now that the Affordable Care Act (ACA) is in effect, an ACA-qualified health plan includes guaranteed acceptance, meaning an insurance company cannot reject your application or increase premiums because of a pre-existing condition or health issue.

For more information on guaranteed acceptance or the Affordable Care Act, please visit our FAQ page for the Affordable Care Act.

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- When you are paying for your medical expenses from your HSA account, how does your insurance company know when you have paid up to your deductible?
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In two ways...

  1. If you use an in-network provider, they can file your claim for you.  This is the smart way to work things, as it will ensure that you receive the insurance company's discounted PPO price instead of having to pay the full price.
Or, you can save the bills and submit them to the company yourself, either all at once or after you have reached a certain limit in bills.

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- How do I establish an HSA?
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To establish a health savings account, you must be enrolled in an HSA-qualified high-deductible health insurance plan.  First, review all the information on the HSA Info page and look over the remainder of this Q&A section to familiarize yourself with HSAs.  Then visit our "How to" Guide to learn how to choose the right plan, how to apply for health insurance coverage, and how to set up your HSA.

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- How does the new health care reform law affect my coverage and HSA?
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Many provisions of the health care reform law are increasing costs to insurance companies, thus leading to even higher insurance rates.  Thus, we are seeing more people than ever who are switching to an HSA-qualified plan, which not only provides lower premiums but also significant tax advantages.

The new law does increase the penalty for non-medical fund withdrawal from your HSA, and makes over-the-counter medicines no longer an eligible expense that can be paid for with funds from your HSA.

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