How an HSA Works
An HSA qualified plan is an inexpensive high deductible health insurance plan. They are very simple because they don’t have copays on doctors visits or prescription drugs before the deductible. In general, the insurance doesn’t pay for anything, other than preventive care, until the selected deductible is reached. Covered expenses will usually be discounted with the health insurance carriers negotiated rate if the insured has not met the deductible.
Colorado HSA qualified plan participants have the option to open a retirement account that is a lot like an IRA, except that money can be used to pay for qualified health care costs*. The HSA is like a tax deductible savings account with unlimited investment options to cover current and future medical expenses not covered by the plan (like expenses before the deductible, or non-covered expenses like accupuncture or massage). The money the participant deposits, as well as the earnings, is tax-deferred. The money can then be withdrawn to cover qualified medical expenses tax-free, with unused balances rolling over from year to year until the participant turns 65.
- IRS 2011 HSA Contribution Limits
- IRS 2012 HSA Contribution Limits
- IRS 2013 HSA Contribution Limits
- IRS 2014 HSA Contribution Limits
The 2 Parts of an HSA Plan
Part 1: The HSA Qualified High Deductible Health Insurance Policy
The IRS considers a high deductible health insurance plan a policy with a minimum deductible of $1,200 for self-only coverage and $2,400 for family coverage, which are still relatively low. The maximum out-of-pocket (including deductibles and coinsurance) for allowed costs must be no more than $6,050 for self-only coverage and $12,100 for family coverage (these are 2012 HSA contribution and out of pocket limits) and preventive care can have first dollar coverage. The 2013 HSA maximum out of pocket limits were increased by the IRS to $6,250 for an individual and $12,500 for a family. This Colorado HSA health insurance plan may be purchased without the savings account if you want. By doing this, you would just have a high deductible Colorado health insurance plan with relatively low premiums. However, you have to have a Qualified Colorado HSA Health Insurance Plan in order to setup a Health Savings Account – HSA.
Part 2: The Tax-Exempt Individual Health Savings Account
This part is not required. You can have a qualified Colorado HSA health insurance policy on its own. The savings account is designed to cover routine medical expenses and provide savings. In any given year you may deduct the amount you contribute into your HSA from your gross income. Compare available Colorado HSA account administrators with our handy spreadsheet. The 2012 HSA contribution limit is $3,100 for self-only coverage and $6,250 for family coverage, excluding “catch up” contributions for those 55 years and older. The 2013 contribution limit is being increased by the IRS to $3,250 for an individual and $6,450 for families.
If you change to a non-HSA qualified plan later on, you can still keep all of the money in your Colorado HSA account itself, you just can’t contribute to the health savings account anymore. You may also still spend the money in your HSA on anything the IRS Publication 502 considers a legitimate HSA health insurance expense.
Don’t put it off!
By setting up an HSA now you can start accumulating literally hundreds of thousands of dollars by the time you retire in your account. This is money that would have gone to the insurance company, but instead was put into your custodial account. When you compare HSA premiums to the price of a typical Colorado health insurance plan, you will really see how much you can save.When you take the money that would have gone to the insurance company and put it into an interest bearing Colorado HSA account, that money will keep building until you turn 65. Do you want to see how much money you could save for retirement by switching to an HSA? Then use our HSA Future Value Calculator.
Let us get you started with a Colorado HSA health insurance plan NOW
If you have been putting off getting an HSA, we will make it easy for you. All you need to do is contact us to request Colorado HSA information and we will do the work for you. Colorado HSA health insurance premiums are significantly lower than traditional fully-insured health insurance plans with co-pays and low deductibles. The money saved on premiums may be used to fund the HSA. In any given year, there is a good chance that the deductible won’t be met, so the money left over in your account is yours to keep. And, you still have very low exposure because once you meet your deductible, the health insurance company pays your medical expenses.
Catch Up Contributions – 55 and older
If you are 55 or older and are just starting a Colorado HSA, you are allowed to make “catch up” contributions to your account until you enroll in Medicare. In the year you enroll in Medicare, you are required to pro-rate the catch-up contribution for the number of months you had an HSA qualified high deductible health plan, before the month your Medicare enrollment is effective. Here are the allowable “catch up” contributions:
- 2004: $500
- 2005: $600
- 2006: $700
- 2007: $800
- 2008: $900
- 2009 and after: $1000
Qualifying Medical Expenses
*See IRS Publication 502 for a list of qualifying HSA expenses. All terms and conditions of coverage, including benefits and exclusions, are contained in the certificate, which shall control in the event of a conflict with this overview. Insurance Shoppers and the Colorado Health Insurance Insider are not engaged in rendering tax, investment or legal advice. Federal and state regulations are subject to change. If tax, investment or legal advice is required, seek the services of a licensed professional.