What Is the Difference Between an HMO & an HSA Health Insurance Plan?

When the time comes to pick a health insurance plan, you might have the choice between a standard HMO or a high-deductible health plan combined with a health savings account. Understanding the differences in these types of plans is critical if you are to make the right decision.

HMO

• An HMO, or health maintenance organization, is designed to provide comprehensive health care to its members. Many companies offer HMO plans to their employees, and those plans are available on the individual market as well. With an HMO, individuals typically choose a primary care physician, and that physician coordinates any additional care, including specialist visits.

HSA

• A health savings account, or HSA, is part of the drive toward consumer-driven health care. The idea behind the health savings account is that consumers will make smarter decisions when they spend their own money on heath care services. An HSA allows you to put money aside on a pretax basis and use that money to pay for medical and health care services not covered by your health insurance plan.

HDHP

• In order to open an HSA, you must first have a high-deductible health plan, or HDHP, in place. Not every health plan qualifies as an HDHP, so you need to make sure that you are eligible for an HSA before you open one. If you get your health care through your employer, you can check with your human resources department for HDHP information. If you bought your plan on the individual market, you can ask your insurance broker if your current plan qualifies for an HSA.

Contribution Limits

• The IRS imposes limits on the amount you can contribute to a health savings account. The tax agency examines those limits and adjusts them as necessary on an annual basis. For the year 2011, individuals can contribute up to $3,050 to their health savings accounts. Those who have a family plan established can contribute up to $6,050. It is important to review those limits each year before making your contribution, since putting in more than the allowable limit could trigger a tax penalty.