This is page two of a Health Savings Account Handbook guide. Start with page one to understand all of the ins and outs of Health Savings Accounts (HSAs).
Contents
Overview
This page lays out and explains the basic ideas that you’ll need to know as you go through the rest of this guide. It’s a good idea to bookmark this page so you can refer back to it later.
Also, take a quick look at the glossary in Appendix A for explanations of other health insurance and tax-related terms. And don’t forget to check out the chart at the end of this chapter, which shows the contribution limits set by the government for different types of accounts for last year, this year, and next year.
Understanding the terms and concepts in this chapter will help you grasp the special advantages of Health Savings Accounts (HSAs) and let you compare different health plans more easily.
To start and put money into an HSA, you need to meet these IRS rules:
- You need to have coverage from an HSA-qualified health plan on the first day of the month when you open the HSA or make your first contribution.
- You can’t have any other health coverage, except for some specific types.
- You can’t be enrolled in Medicare.
- And nobody else can claim you as a dependent for taxes.
These rules only affect your ability to open and add money to an HSA. They don’t affect your ability to keep the account, earn tax-free interest and investment profits, or use the money for qualified medical expenses.
You can still keep, grow, and spend all the money in the account, even if you change jobs, lose your qualifying coverage, or get other types of healthcare coverage.
Health coverage terms
Deductible
According to HealthCare.gov, a deductible is the amount of covered expenses you have to pay before your health insurance starts kicking in. Some services, like preventive care, might not count towards your deductible. This amount usually resets at the start of each plan year, which could be the calendar year (January 1 to December 31) or another 12-month period chosen by your employer or insurer. Some plans might let your deductible build up for longer than a year.
HSA-qualified health plans have to stick to certain limits set by law for both the lowest deductible and the highest out-of-pocket costs. These limits might change each year, depending on changes in the Consumer Price Index (CPI). The IRS usually announces these changes in May or June before they go into effect for the next tax year.
HSA-Qualified Health Plan Numbers
| Minimum annual deductible | Out-of-pocket maximum | |||
| Year | Single | Family | Single | Family |
| 2022 | ≥$1,400 | ≥$2,800 | ≤$7,050 | ≤$14,100 |
| 2023 | ≥$1,500 | ≥$3,000 | ≤$7,500 | ≤$15,000 |
| 2024 | ≥$1,600 | ≥$3,200 | ≤$8,050 | ≤$16,100 |
Embedded deductible
Some HSA-qualified health plans come with something called an embedded deductible. Here’s how it works: if the individual deductible within the plan equals or surpasses the minimum family deductible set by law, then the plan qualifies for an HSA.
So, even if you have family coverage, if you meet the individual deductible that’s higher than the minimum family deductible, you’ve met the whole family’s deductible.
However, if either the deductible for the whole family or the deductible for one family member falls short of the minimum annual deductible required by the IRS for family coverage, then the plan doesn’t qualify for HSA contributions.
Example: Embedded deductible Michael has family health insurance coverage for 2022, with an annual deductible of $3,500 and an individual deductible (or embedded deductible) of $1,500 for each family member. The plan does not qualify as an HSA-qualified health plan because the deductible for an individual family member falls below the minimum annual deductible of $2,800 for family coverage in 2022. Matt’s family health insurance coverage for 2022 has an annual deductible of $6,000 and an individual deductible (or embedded deductible) of $3,000 for each family member. Matt’s plan qualifies as an HSA-qualified health plan, because the deductible for an individual family member exceeds the minimum annual deductible of $2,800 for family coverage in 2022.
Carry-over deductible
Some health plans have a feature called carry-over deductibles, where expenses from the end of one plan year can carry over to the next. Typically, this applies to expenses incurred in the last three months before the plan year ends.
Carry-over deductibles can be helpful if you have expenses late in the year, but they might also cause your health plan to lose its HSA-qualified status.
The IRS requires HSA-qualified plans to have annual deductibles, meaning they’re based on a 12-month period. However, IRS Notice 2004-50 says that a carryover provision won’t disqualify a plan from being HSA-qualified, as long as the minimum annual deductible is adjusted proportionally to account for the fact that expenses over more than 12 months may count towards the deductible.
To calculate this adjustment, multiply the minimum annual deductible for self-only or family HSA-qualified coverage by the number of months allowed to satisfy the deductible, then divide by 12. The adjusted deductible must be equal to or greater than the recalculated minimum deductible for the plan to remain HSA-qualified.
Since the deductible now spans more than 12 months, you need to recalculate the IRS minimum deductible to ensure your plan stays HSA-qualified.
Annual Deductible x (# months in plan ÷ 12)
Example: Carry-over deductible Katie has a plan that allows him to include expenses from 15 months (a three-month carry-over) to satisfy the deductible. Instead of the minimum annual deductible listed in the previous table, Katie's health plan must satisfy the following calculated amounts to qualify Matt to make HSA contributions. Individual policy minimum deductible for 2022: $1,400 x (15/12) = $1,750 Family policy minimum deductible for 2022: $2,800 x (15/12) = $3,500
Copayments vs. coinsurance
“Copayment” is a set amount of money you pay for each doctor visit, treatment, test, prescription, and so on. For instance, you might pay $25 for an office visit or $50 for an X-ray.
“Coinsurance” is a percentage of a medical expense that the patient pays. After meeting your deductible, you might pay, for example, 20% of your in-network medical expenses until you hit your out-of-pocket maximum for the year.
Out-of-pocket maximum
The out-of-pocket maximum is the highest amount you could pay for healthcare in a single plan year. The Affordable Care Act (ACA) sets a limit on the out-of-pocket maximum for in-network care, but out-of-network care might have higher or even unlimited out-of-pocket costs.
With HSA-qualified health plans, the money you spend on in-network deductibles, copays, or coinsurance (excluding premiums) counts toward your out-of-pocket maximum. Whether out-of-network charges also count towards this maximum can vary depending on the plan.
Once you reach your plan’s limit for the year, your health coverage takes care of all additional in-network qualified expenses, regardless of the plan’s usual copay or coinsurance setup.
It’s important to note that the maximum out-of-pocket expense limit usually applies only to in-network care. Plans might have higher out-of-pocket limits for out-of-network care. If a plan has separate out-of-pocket maximums for each family member, the total of these limits must be $14,100 or less in 2022.
Example: Out-of-pocket maximum David has a deductible of $1,500 and an out-of-pocket maximum of $3,000. David pays all covered medical expenses until she meets his $1,500 deductible, after which his plan agrees to split the bill 80/20. The plan pays 80% of covered medical expenses after the deductible, and David pays 20% in coinsurance. If David has additional qualified expenses after he reaches his deductible, he pays 20% of those bills until he spends another $1,500 out of her own pocket. Again, these limits might not apply to out-of-network or non-covered expenses. When her total spending for qualified expenses reaches $3,000 (his out-of-pocket maximum), his health plan pays 100% of the rest of her in-network covered medical expenses for that plan year. Example: Multiple out-of-pocket maximum limits Sam, Sarah, and their two children have a family plan. Their plan defines each family member’s in-network, out-of-pocket maximum as $3,000 (thus, $12,000 for the entire family), after which the plan pays 100%. Because the IRS defines the HSA-qualified health plan out-of-pocket maximum per family as $14,100 in 2022, their plan qualifies them to make contributions to an HSA. 4 x $3,000 = $12,000 $12,000 < $14,100 However, if they had three children, their plan would not qualify because the maximum out-of-pocket limit exceeds the legal maximum. 5 x $3,000 = $15,000 $15,000 > $14,100
Preventive care
First-dollar coverage
Your insurance might cover certain medical expenses, particularly preventive care and treatments for certain chronic conditions, without any cost to you, even before you meet your deductible.
The Patient Protection and Affordable Care Act (PPACA) mandates that all new group health plans and individual market plans offer coverage for preventive services, like immunizations and screenings, without any cost-sharing.
For HSA-qualified health plans, preventive care typically doesn’t include services aimed at treating existing illnesses, injuries, or conditions. However, as of July 17, 2019, the IRS and Health and Human Services expanded the list of preventive services that plans can cover without cost-sharing, while still maintaining HSA qualification. This expanded list includes specific treatments for certain chronic conditions such as congestive heart failure, asthma, diabetes, and depression.
Employers and health plans can decide which preventive services their coverage will pay for. Be sure to check your plan to see if it includes any of the following:
- Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals
- Routine prenatal and well-child care
- Child and adult immunizations
- Tobacco cessation programs
- Obesity weight-loss programs
- Medications intended to prevent disease (such as certain blood pressure and cholesterol medications)
- Screening services for the following:
- Cancer
- Heart and vascular diseases
- Infectious diseases
- Mental health conditions
- Substance abuse
- Metabolic, nutritional, and endocrine conditions
- Musculoskeletal disorders
- Obstetric and gynecological conditions
- Pediatric conditions
- Vision and hearing disorders
Network considerations
If your health plan has agreed on rates with a particular network of providers for the preventive care they offer, only the preventive services provided by in-network providers have to be covered without you having to pay anything, and this is even before you meet your deductible. However, if your health plan allows you to get this preventive care from a provider outside of their network, you might have to pay for those services.
Networks and discounts
Typically, an HSA-qualified health plan offers greater flexibility and advantages if you have an HSA. Since you own the money in your HSA, you can use it to get treatment from almost any licensed healthcare provider, regardless of whether they are part of your health plan’s network.
In-network services
Using facilities and providers within your HSA-qualified health plan’s network stretches your HSA funds further because the plan negotiates lower prices for services received in-network. Seeking care at in-network facilities and from in-network providers has two advantages:
- You’ll usually spend less if you use services covered by your plan and only see providers who are part of your plan’s network.
- Additionally, most or all of your healthcare expenses can typically count towards meeting your deductible and your plan’s out-of-pocket limits.
Repricing
If your health plan makes a distinction between in-network and out-of-network providers, it will adjust (“reprice”) your healthcare expenses when you use in-network providers to reflect any discounts negotiated with those providers. While HSA-qualified health plans aren’t required to establish networks with negotiated discounts, many do so, offering substantial cost savings to plan members. In some cases, you might also see repricing for out-of-network providers.
Example: Paying a network provider Russell’s physician charges $150 for a visit for an acute sore toe. As a provider in his health plan’s network, his physician has agreed to accept $75 from his plan for this type of visit. Russell does not pay his provider the $150 charge at the time of the visit. Instead, because he chose an in-network provider, he waits for the health plan to reprice the claim, applying the discount that his provider agreed to accept. He may also receive a bill directly from his doctor for the adjusted amount. If he has not yet met his deductible at the time of the visit, he pays the $75 from his HSA (or from another account). His plan credits this amount toward his annual deductible and out-of-pocket limit.
Usual, customary, and reasonable amounts
Health plans usually cover expenses based on what they consider usual, customary, and reasonable (UCR)—the average rate for a specific medical service or procedure in your area. If your expenses exceed this amount and are not covered by your HSA-qualified health plan, they usually don’t count towards your deductible or maximum out-of-pocket expenses.
Example: Fee charged by an out-of-network provider Your plan determines that a certain type of surgery should reasonably cost $1,000 — a price it has negotiated with its in-network providers. You go to an out-of-network provider who charges $2,500. Your insurance will pay only $1,000 of this bill, and the additional $1,500 you pay may not apply to your health plan’s deductible and out-of-pocket limit. Inquire as to whether your HSA-qualified health plan has separate limits for in and out-of-network care and whether its network includes the providers you want to use. You can get this information from your employer’s benefits administrator, your health plan, your HR team, or the Summary of Benefits and Coverage (SBC) given to you during open enrollment.
Refusal of charges
If your provider hasn’t made an agreement with your plan, then the plan isn’t required to cover the full cost charged by the provider. This means you might have to pay the difference, which might not count towards your health plan’s deductible or out-of-pocket limit.
Example: UCRs and deductibles Harper’s doctor charges $160 for an x-ray. Her insurance company decides that the UCR charge is $130 and then pays half of this reduced amount ($65), based on a 50% coinsurance provision for x-rays in Harper’s plan. Harper pays the remaining half ($65), and likely the $30 difference between the UCR and the billed charge if the doctor does not have a negotiated discount agreement. If the doctor requires that she pay the extra $30, the visit costs Harper $85. The doctor still receives her usual fee of $160: $95 from Harper and $65 from her insurance company. However, because her health plan sets a UCR cap, the additional $30 that Harper paid does not count toward her deductible and out-of-pocket limit for the year—though the $30 could come from her HSA.
Referrals and authorization
Even if you use providers within your plan’s network, you might still need to get a referral from your primary care provider to see a specialist or receive authorization from your health plan for a medical procedure.
Gatekeepers
Some health plans require you to use a gatekeeper or primary care physician to get referrals or authorizations for certain medical services or procedures. Typically, general practitioners (GPs), family practitioners, pediatricians, and internists act as gatekeepers, managing and coordinating all aspects of a patient’s care. If your plan mandates a gatekeeper, you’ll need to select a group or doctor as your primary care physician and contact the plan if you want to choose a different gatekeeper.
Referrals
In many managed care plans, you’ll need a referral from your primary care provider to see a specialist. Even if your provider allows you to schedule an appointment with a specialist without a referral, your insurance might not cover the visit unless you’ve received one. It’s important to understand your health plan’s guidelines to prevent unexpected expenses.
Authorization
In addition to a referral, you might also need authorization, which is your health plan’s permission, to proceed with a medical or surgical procedure. Without authorization, the plan may refuse to cover the procedure, even if it otherwise qualifies.
If you don’t get a referral or authorization when needed, your plan might impose a higher copayment, coinsurance rate, or even a flat-dollar penalty. These additional costs may not count towards your HSA-qualified health plan’s out-of-pocket limit for the year. However, you can still pay for these expenses using funds from your HSA. It’s important to understand and adhere to your plan’s rules to avoid unexpected expenses.
Contribution and other limits
The following table summarizes IRS-imposed limits for various accounts.
| Account | Details | 2022 | 2023 | 2024 |
|---|---|---|---|---|
| Health FSA | Individual, Family | $2,850 | ||
| LPFSA | Individual, Family | $2,850 | ||
| DCFSA | Individual or Married, file separately |
$2,500 | $2,500 | |
| DCFSA | Family or Single parent | $5,000 | $5,000 | |
| FSA | Carryover | $570 | ||
| HSA | Individual | $3,650 | $3,850 | $4,150 |
| HSA | Family | $7,300 | $7,750 | $8,300 |
| HSA | >55 catchup | $1,000 | $1,000 | $1,000 |
| QSEHRA | Individual | $5,450 | ||
| QSEHRA | Family | $11,050 | ||
| EBHRA | Max amount newly available | $1,800 | $1,800 | $1,950 |
| HSA-qualified health plan |
Min deductible: Individual | $1,400 | $1,500 | $1,600 |
| HSA-qualified health plan |
Min deductible Family | $2,800 | $3,000 | $3,200 |
| HSA-qualified health plan |
Max OOP: Individual | $7,050 | $7,500 | $8,050 |
| HSA-qualified health plan |
Max OOP: Family | $14,100 | $15,000 | $16,100 |
In addition to the accounts listed in the previous table, other caps and limits include:
Long-term care deduction limits
A portion of long-term care premiums qualifies as medical expenses for tax and reimbursement purposes. The tax-deductible portion of these premiums increases with age:
| <40 | $450 |
| 41-50 | $850 |
| 51-60 | $1,690 |
| 61-70 | $4,520 |
| 71+ | $5,640 |
Highly compensated employee (HCE)
Certain limits and regulations are specifically applicable to non-highly compensated employees (non-HCEs). The IRS regularly updates its definition of “highly compensated” each year.
| 2021 | $130,000 |
| 2022 | $135,000 |
| 2023 | $150,000 |
Summary
HSA-qualified health plans must adhere to standards established by the government for plan terms, minimum deductibles, and maximum out-of-pocket expense limits.
Terms:
Deductible refers to the portion of covered expenses that you need to pay within a specific plan year before your health plan begins covering medical claims.
Out-of-pocket maximum: This is the limit on the total amount you’ll have to pay for both in-network and out-of-network care within a single year.
Copayment: It’s a fixed dollar amount you’re charged for specific services like office visits and tests.
Co-insurance: This is the percentage of the total bill that you’re responsible for paying after you’ve met your deductible.
You typically save money by getting treatment from providers and facilities that are in-network, as they have negotiated discounts with your insurance company.