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      1. Understanding HDHPs

Home | News & Resources | Resources | Understanding HDHPs

Understanding HDHPs

What is a Consumer Driven (CDHP) or High Deductible (HDHP) Health Plan ?

Just like the name suggests, an HDHP has a high deductible which you must satisfy before any benefits are paid by the insurance company. Participation in an HDHP will allow you to establish a Health Savings Account (HSA) where you can put away funds on a pre-tax basis to pay your portion of eligible medical expenses. A qualified HDHP must have all covered expenses, including prescription drugs (other than some preventative services), subject to the deductible.

What is a Health Savings Account (HSA) and how does it work with an HDHP?

A Health Savings Account (HSA) is a special account owned by an individual that is used to pay medical expenses. The account holder controls whether to contribute, how much, whether to pay expenses from the account or save for the future.

In order to contribute to an HSA an individual must be covered by a qualified High Deductible Health Plan (HDHP) and they can not be:

  • Covered by other health insurance
  • Enrolled in Medicare Part A or Parts A & B
  • Claimed as a dependent on someone else’s tax return

What is the maximum that can be contributed to an HSA in 2013?

  • Single Coverage: $3,250
  • Family Coverage: $6,450
  • Catch-up (age 55+): $1,000

What qualified expenses can be paid using HSA funds?

All expesnes must be documented with receipts. HSA distributions can be used to pay:

  • Most medical expenses
  • Prescription drugs
  • Over the counter drugs
  • Dental treatments + orthodonture
  • Vision exams and eyewear

If HSA funds are used for anything other than qualified medical expenses they are subject to income tax and a 10% excise tax (prior to age 65).

Current and Long Term HSA Advantages

  • Contributions are made pre tax either directly by the account holder or through a salary reduction arrangement.
  • If contributions are made by salary reduction through a Section 125 Cafeteria plan then they are not subject to payroll taxes (ie. social security and Medicare).
  • Earnings accumulate on a tax free.
  • Distributions are tax free as long as they used to pay for qualified medical expenses for the account holder, his spouse and qualifying children or relatives, even if no longer in an HDHP.
  • HSA account balances can be carried forward for life.
  • HSA account balances can be transferred tax free to a spouse.
  • HSA funds can pay for a Cobra Continuation premiums, Medicare insurance premiums and a portion of Long Term Care insurance premiums.
  • HSA accounts are portable.

For more information on HSA’s go to government website