Answer Center > Financial Benefits

Just like the HSA concept, there are two parts to the financial benefits. The advantage of a High Deductible Health Plan is that premiums are typically more affordable and tend to be more stable. If you deposit the savings from switching to a qualified High Deductible Health Plan into a Health Savings Account (HSA), the money can be used for the "first dollar expenses," (i.e. your deductible). HSAs are the most tax-advantaged vehicle in the US. If you do not have claims greater than the amount deposited, the money can be invested for future claims. Accounts are portable, so even if you change jobs, become unemployed, etc. you can still use the money in your HSA to pay for healthcare.

Consumer-driven healthcare (CDH) represents a new way in which healthcare is financed and managed. Most traditional fee-for-service or managed care health plans charge high monthly premiums in exchange for low deductibles, small co-insurance payments and low out-of-pocket costs. These plans don't give the consumer an incentive to shop for the lowest cost of services or make judicious use of health benefits. CDH plans put greater decision-making capability in the hands of the consumer and provide the consumer with a financial incentive to keep healthcare expenses low.

CDH typically consists of two components: 1) a personal account and 2) an insurance plan.

A personal account pays for routine healthcare expenses. These accounts are typically funded in part or whole by the employer, and can take the form of a Healthcare Savings Account (HSA) or a Healthcare Reimbursement Account (HRA). In the case of a HSA, the account is completely in the control of the employee and any balance in the account is portable and can be carried over from year to year.

An insurance plan has a relatively high deductible, with premiums typically paid in part or whole by the employer. As with any plan, the employee is responsible for health care expenses until the deductible has been met. Once the deductible has been met, high deductible health plans (HDHPs) provide benefits that are very similar to traditional fee-for-service or managed care plans.

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 your plan does not cover. For 2008, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,100 (self-only coverage) or $2,200 (family coverage). The annual out-of-pocket (including deductibles and co-pays) for 2008 cannot $5,600 (self-only coverage) and $11,200 (family coverage). HDHPs can have first dollar coverage (no deductible) for preventive care and apply higher out-of-pocket limits (and co pays & coinsurance) for non-network services.

A high-deductible health plan may be offered by a variety of entities, including insurance companies and health maintenance organizations (HMOs).

With a consumer-driven plan, you are responsible for paying all of your medical bills up to the amount of your deductible. Since you are responsible for paying the money, you may also choose what services you want without being beholden to a health plan insurer. This also means that you have a natural incentive to evaluate cost and quality information, an incentive you do not have with a traditional PPO, HMO or indemnity plan. The Catch: Not all of your medical services may be covered under your plan. If you purchase an uncovered medical service (like, say, acupuncture), you may be allowed to pay for it with health savings account (HSA) dollars, but it may not count towards your deductible. When you comparison shop between plans, it is critical for you to consider these factors to ensure you buy what you think you are buying.

A consumer-driven health plan involves maximum savings because it combines tax incentives with a high deductible health-plan (HDHP). HDHPs typically offer a better value for your money because their premiums are significantly lower, and any out-of-pocket cost risk to consumers can be minimized by funding HSAs to cover health expenditures up to the deductible. HDHP premiums have, in general, not been subject to the kinds of rate increases that traditional health plans have seen over the last few years. However, this is not true in all states and for all health plans, so the best way to verify if a consumer-driven plan is right for you is to use our Plan Comparison Tool.

A consumer-driven plan involves a Health Savings Account (HSA) or Health Reimbursement Account (HRA) and a high-deductible health plan. This is an additional degree of complexity for the average consumer. CDHPs place the responsibility on you, the consumer, to shop around and find the best mix of price and quality for your health dollar. Additionally, consumer-driven health plans often mean more out-of-pocket healthcare spending for average consumers. How can you figure out if a consumer-driven health plan is right for you? Use our Plan Comparison Tool.

It is true that individuals who are unlikely to use covered medical services during the year will probably save the most money with high deductible health plans. However, consumer-driven healthcare (CDH) can result in savings and greater flexibility for consumers of all kinds. Individuals likely to make moderate or heavy use of medical services should be sure to understand the benefits covered under their CDH plans and pay special attention to the co-insurance, maximum out-of-pocket, and any exclusions or carve-outs in the plan.

Your high deductible insurance and HSA protect you against high or unexpected medical bills.

You should be able to lower your health insurance premiums by switching to a health insurance coverage with a higher deductible. To see quotes of available plans, click here.

Your can use the funds in your account to pay for current medical expenses, including expenses that your insurance may not cover, or save the money in your account for future needs, such as:

• Health insurance or medical expenses if unemployed
• Medical expenses after retirement (before Medicare)
• Out-of-pocket expenses when covered by Medicare
• Long-term care expenses and insurance

You can save the money in your account for future medical expenses and grow your account through investment earnings.

You make all the decisions about:

• How much money to put into the account
• Whether to save the account for future expenses or pay current medical expenses
• Which medical expenses to pay from the account
• Which company will hold the account
• Whether to invest any of the money in the account
• Which investments to make

Accounts are completely portable, meaning you can keep your HSA even if you:

• Change jobs
• Change your medical coverage
• Become unemployed
• Move to another state
• Change your marital status

Funds remain in the account from year to year, just like an IRA. There are no "use it or lose it" rules for HSAs

An HSA provides you triple tax savings:

• Tax deductions when you contribute to your account;
• Tax-free earnings through investment; and,
• Tax-free withdrawals for qualified medical expenses.

As you fund your account, you build up a financial "nest egg" which allows you to raise your deductible as your account grows. Every time you raise your deductible, your premium should go down. Of course, don't forget that every time you fund your account you get an instant tax-deduction. When you offset the tax savings against your premiums, you'll find your net cost for an HSA plan can be very low. The maximum allowable contribution goes up every year with the rise of the Consumer Price Index. In 2008, the individual contribution limit is $2,900 and the family limit is $5,800. So every year you can deposit greater amounts into your HSA and continue to raise your deductible, if you decide to do so.

All health insurance plans have rate increases. If a rate increase happens to you, you can switch to a different insurance company-but only if you pass their underwriting requirements. If chronic disease develops, you may be stuck with your current plan, and its accompanying rate increases, for a long time. If you pay attention to the pharmaceutical commercials, you learn lifestyle really has nothing to do with disease, and it is natural and healthy to be on many medications for the rest of your life, which will then solve your health problems. If you pay attention to the science, you know the truth is quite different. It appears lifestyle is probably 95% of the picture, and we know the occurrence of degenerative disease can be dramatically reduced and even prevented.

We've found many HSA owners are interested in wellness, and disease prevention. After all, they're paying for their own doctor visits if they do get sick. We also believe it is because HSA owners are "forward thinking" people, and like to plan for their future in regards to their financial and physical well-being.

As is often the case, people keep their plan much longer than they should, and end up paying much more than they should. If your rates go up, you can compare a wide variety of plans on our Quote Page. If you have your coverage through HSA Living, we automatically update you when your rates increase, and complete our Annual Comprehensive Policy Review, giving you an analysis of available plans any time we are notified of a rate increase or a change in your current situation.

HSA funds can pay for any "qualified medical expense," even if the expense is not covered by your HDHP. For example, most health insurance does not cover the cost of over-the-counter medicines, but HSAs can. If the money from the HSA is used for qualified medical expenses, then the money spent is tax-free.

Unfortunately, we cannot provide a definitive list of "qualified medical expenses". A partial list is provided in IRS Pub 502 (www.irs.gov). There have been thousands of cases involving the many nuances of what constitutes "medical care" for purposes of section 213(d) of the Internal Revenue Code. A determination of whether an expense is for "medical care" is based on all the relevant facts and circumstances. To be an expense for medical care, the expense has to be primarily for the prevention or alleviation of a physical or mental defect or illness. The determination often hangs on the word "primarily."

You are responsible for that decision, and therefore should familiarize yourself with what qualified medical expenses are (as partially defined in IRS Publication 502) and also keep your receipts in case you need to defend your expenditures or decisions during an audit.

If the money is used for other than qualified medical expenses, the expenditure will be taxed and, for individuals who are not disabled or over age 65, subject to a 10% tax penalty. For more tax information, click here.

Yes, as long as these are deductible under the current rules. For example, cosmetic procedures, like cosmetic dentistry, would not be considered qualified medical expenses.

Yes, you may withdraw funds to pay for the qualified medical expenses of yourself, your spouse or a dependent without tax penalty. This is one of the great advantages of HSAs.

HSAs are a Federal program and as such covered by Family Protection Act, which does not recognize domestic partnerships even if the state of residency does. In the state of California for example, an employee's domestic partner could be covered under the employee's health plan however, the employee can only make a single HSA contribution (assuming there were no children). In such a case, the employee cannot use his/her HSA funds for the domestic partner's expenses (even if qualified) without being taxed and penalized. The only way for a domestic partner to be a recognized for Federal tax purposes is if the partner qualifies to be a legal tax dependent.

Yes.

You can only use your HSA to pay health insurance premiums if you are collecting Federal or State unemployment benefits, or you have COBRA continuation coverage through a former employer.

Yes, if you have tax-qualified long-term care insurance. However, the amount considered a qualified medical expense depends on your age. See IRS Publication 502 for the amounts deductible by age.

Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.

No. You cannot reimburse qualified medical expenses incurred before your account is established. We recommend you establish your account as soon as possible.

If you are still covered by your HDHP and have not met your policy deductible, you will be responsible for 100% of the amount agreed to be paid by your insurance policy to the physician. Your physician may ask you to pay for the services provided before you leave the office. If your HSA custodian has provided you with a checkbook or debit card, you can pay your physician directly from the account. If the custodian does not offer these features, you can pay the physician with your own money and reimburse yourself for the expense from the account after your visit.

If your physician does not ask for payment at the time of service, the physician will probably submit a claim to your insurance company, and the insurance company will apply any discounts based on their contract with the physician. You should then receive an "Explanation of Benefits" from your insurance plan stating how much the negotiated payment amount is, and that you are responsible for 100% of this negotiated amount. If you have not already made any payment to the physician for the services provided, the physician may then send you a bill for payment.

There are two options: 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 company's discounted PPO price, instead of having to pay to full price. Or, you could simply save the bills and submit them to the company yourself, either all at once, or after you have reached a certain limit in bills.

For a complete list of Qualified Medical Expenses, click here