Used in combination with a High Deductible Health Plan (HDHP), funds deposited in an HSA can be used to pay medical bills until the plan’s deductible is met and health coverage takes effect. If your health insurance has a four-figure deductible, it is important that you know the requirements to have a health savings account (HSA).
HSAs were established in 2003 as part of the Medicare Prescription Drug Modernization and Improvement Act . These savings accounts have become an increasingly popular option for consumers looking to manage their health care costs. They also work as a tax-advantaged savings tool.
Key information about HSAs:
- The HSAs will enable aside pretax income to cover health expenses that your insurance does not pay.
- You can only open and contribute to an HSA if you have a qualifying high deductible health plan.
- For 2020, the maximum contribution amounts are $ 3,550 for individuals and $ 7,100 for family coverage. If you are 55 or older, you can add up to $ 1,000 more as a catch-up contribution.
- HSAs do not have a “use it or lose it” provision. Any funds that are still in the plan at the end of the year can be renewed indefinitely.
Requirements for having a health savings account (HSA)
Here are the requirements for a health savings account d and in accordance with federal guidelines.
You can open and contribute to an HSA if:
- You are covered by a high deductible health plan that meets the minimum necessary deductible and maximum out-of-pocket limit for the year.
- You are not covered by any other health plan, such as spouse.
- You are not enrolled in Medicare.
- You are not enrolled in TRICARE or TRICARE for life.
- You are not claimed as a dependent on someone else’s tax return.
- You are not covered by Veterans Administration medical benefits.
- You don’t have any disqualifying alternative medical savings accounts, such as a flexible spending account or a medical expense reimbursement account
What qualifies as a high deductible health plan?
Generally speaking, an HDHP is a health plan that trades relatively low premiums for relatively high deductibles, as the name implies. To qualify for an HSA that can be opened in combination with an HDHP, you must meet certain criteria. The IRS sets guidelines each year, adjusting the figures for inflation. In 2020 , an HSA account can only be opened if the account owner’s plan meets the following qualifying criteria: