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How do high-deductible health plans work with health savings accounts?

The combination of a health savings account (HSA) and a high deductible health plan (HDHP) can provide you health coverage, while helping to make sure you have money to pay for your medical expenses now and in the future, all with certain tax advantages.  The Internal Revenue Service (IRS) requires you to have an HDHP in order to open an HSA.

The money in your HSA can be used to help pay your health insurance deductible and qualified medical expenses, including those not covered by your plan, like dental and vision care. Each year, the IRS sets the minimum annual deductible and the maximum annual deductible and out-of-pocket expenses both for an individual with an HDHP/HSA plan and a family HDHP/HSA plan. For example, in 2016, the minimum annual deductible for an individual is $1,300 and for a family is $2,600. The maximum annual deductible and out-of-pocket expenses for an individual is $6,550 and for a family is $13,100. 

These amounts might sound high, however, premiums for HDHPs tend to be lower than for other types of insurance plans. Furthermore, HSAs offer certain tax advantages that can help to offset the high deductibles of the HDHP; contributions to an HSA are tax deductible, withdrawals from the account to pay for qualified medical expenses are tax exempt, and interest earned in an HSA is tax-free.

The HDHP/HSA combination can also offer some long-term protection. The funds in an HSA can roll over and grow from year to year to save for higher medical costs in the future. Also, in the event of a catastrophic health crisis, HDHPs typically cover more of the costs than other plans. In fact, some HDHPs will cover 100 percent of costs after the deductible and out-of-pocket maximums have been met for the year. 

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.