High Deductible Health Plans

One way to manage your health care expenses is by enrolling in a High Deductible Health Plan (HDHP) in combination with opening a Health Savings Account (HSA).

How High Deductible Health Plans and Health Savings Accounts can reduce your costs

  • If you enroll in an HDHP, you may pay a lower monthly premium but have a higher deductible (meaning you pay for more of your health care items and services before the insurance plan pays).
  • If you combine your HDHP with an HSA, you can pay that deductible, plus other qualified medical expenses, using money you set aside in your tax-free HSA.
  • So if you have an HDHP and don’t need many health care items and services, you may benefit from a lower monthly premium. If you need more care, you’ll save by using the tax-free money in your HSA to pay for it.
  • Your HSA balance rolls over year to year, so you can build up reserves to pay for health care items and services you need later.

What’s considered a High Deductible Health Plan?

Under the tax law, HDHPs must set a minimum deductible and a limit, or maximum, on out-of-pocket costs.

For calendar year 2020, these amounts for HDHPs are:

Minimum deductible (The amount you pay for health care items and services before your plan starts to pay) Maximum out-of-pocket costs (The most you’d have to pay if you need more health care items and services)

Individual HDHP

$1,400

$6,900

Family HDHP

$2,800

$13,800

HDHP deductibles are often significantly higher than the minimums shown above and can be as high as the maximum out-of-pocket costs shown above.

How Health Savings Accounts work with a High Deductible Health Plan

An HSA is an account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses, as defined in the tax law. See IRS Publication 502 (PDF) for more information.

  • By using pre-tax dollars in an HSA to pay for deductibles, copayments, coinsurance, and other qualified expenses, including some dental, drug, and vision expenses, you can lower your overall health care costs.
  • You can contribute to an HSA only if you have an HSA-eligible HDHP.

Important facts about HDHPs and HSAs

Benefits of HDHPs with HSAs But also consider ...

HDHPs may have lower monthly premiums than non-HDHPs.

Your deductible — the costs you pay before the HDHP starts to pay — is higher than for many non-HDHPs.

You can deduct the amount you deposit in an HSA from the income you pay federal income tax on.

If you have money in your HSA when you turn 65, you can spend it on anything you want — but if you aren’t spending it for a qualified medical expense it will be taxed as income at your then current tax rate.

You can use HSA funds to pay for deductibles, copayments, coinsurance, and other qualified medical expenses. Withdrawals to pay eligible medical expenses are tax-free.

Unspent HSA funds roll over from year to year, allowing you to build tax-free savings to pay for medical care later. HSAs may earn interest, which is not subject to taxes.

HDHPs are available in most areas, and may be available as qualified health plans at the Bronze, Silver, or Gold levels on HealthCare.gov. HDHPs may also be available for enrollment directly through health insurance companies and may be offered by your employer.

HDHPs may not be available in your area. You’ll find out when you compare plans on HealthCare.gov, or when you contact an agent, broker, or insurance company.

An HDHP may provide certain preventive care benefits without a deductible or with a deductible less than the minimum annual deductible.

How much you can put in an HSA

There are yearly limits for deposits into an HSA. These limits for 2020 are:

  • $3,550 for self-only HDHP coverage
  • $7,100 for family HDHP coverage

Amounts are adjusted yearly for inflation. If you are age 55 or older at the end of your tax year, your contribution limit is increased by $1,000.

How to find an HSA-eligible HDHP

  • When you compare plans on HealthCare.gov, HSA-eligible HDHPs are identified on plan cards by an “HSA-eligible” flag in the upper left-hand corner.
  • You can also filter to see only HSA-eligible plans by using the “Filter” option in the right-hand corner, and selecting the “Health Savings Account (HSA) Eligible Plans” filter.

How to set up a Health Savings Account

After enrolling in an HSA-eligible HDHP, you’ll need to open an HSA separately to get started.

  • Some health insurance companies offer HSAs for their HDHPs. Check with your insurance company for more information.
  • You can also open an HSA through some banks and other financial institutions. Check with those institutions or do research online.

See IRS Publication 502 for a list of qualified medical expenses here: https://www.irs.gov/pub/irs-pdf/p502.pdf.

See IRS Publication 969 for information on the tax treatment of HSAs here: https://www.irs.gov/publications/p969.