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How Low a Deductible Is Needed to Qualify for a Health Savings Account?

A health savings account is designed to work in conjunction with a high-deductible health plan, also known as an HDHP. If your health plan does not qualify as an HDHP, you cannot open an HSA. The Internal Revenue Service imposes a number of rules dictating what qualifies as an HDHP, including rules about the deductibles and out-of-pocket costs imposed by those plans.

  1. Minimum Deductible

    • To qualify for an HSA, the HDHP you have must meet a minimum deductible amount. That minimum deductible is set by the IRS, and it is reviewed on an annual basis. For 2010, the minimum deductible level is $1,200 for an individual HDHP plan and $2,400 for a plan that provides coverage for your entire family. If you are unsure whether or not your current health care plan qualifies, check with your human resources department, if you get your coverage on the job, or your health insurance broker, if you buy your plan on the individual market.

    Out-of-Pocket Costs

    • The IRS also sets rules regarding the maximium out-of-pocket expenses that can be levied by a high-deductible health plan before that plan is eligible for an HSA. These rules also change from time to time, so it is always a good idea to consult with your human resources department or health insurance broker to make sure your current plan still qualifies. For 2010, the maximum out-of-pocket cost the HDHP can impose is $5,950 for an individual plan and $11,900 for family coverage.

    No Expiration

    • One of the advantages of an HSA is that the money left in the account at the end of the year rolls over instead of expiring. That means you can use your HSA to build up a considerable amount of money, especially if you are able to contribute the maximum amount to the plan year after year. If you have low health care expenses in a given year, you can use those leftover funds to cover higher health care costs you experience the next year. If your health continues to be good and your health care costs low, the money can continue to grow until it is needed.

    Proper Budgeting

    • An HSA can be an excellent vehicle for saving money on health care, since the tax treatment of those plans allows you to pay for heath care expenditures with pre-tax dollars. Health savings accounts do, however, require a bit of financial sophistication and familiarity with budgeting. The higher deductible required by the health plan means that you need to set aside money to pay those higher costs. If you do plan to open an HSA, try to fund it with at least enough to cover the deductible on your plan. That ensures that you have enough cash on hand to pay for those unexpected medical bills when they do arise. Health care costs can be quite unpredictable, so it pays to protect yourself as much as possible.

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