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About California Health Savings Accounts

In California, you can use a Health Savings Account (HSA) to build funds to pay for medical treatments to supplement the coverage provided by a medical insurance plan. You can use the funds in an HSA to pay for treatments and related medical cost that may not be included in your medical insurance plan, such as prescription charges. Rules governing the operation of HSAs in all states, including California, are established by federal law.

  1. High Deductible Health Plan Requirement

    • You cannot open an HSA unless you have already opened a High Deductible Health Plan (HDHP). An HDHP is a health insurance policy where the policy holder is liable for the first part of any medical expenses covered by the policy. In California, if you have an HDHP, you can use the money saved in the HSA to pay for the deductible part of your medical expenses not covered by your HDHP.

    Deductible and Payment Limits

    • HSAs can only be used with HDHPs that meet certain limits for deductibles. For an individual in California, the deductible limit must be at least $1,050, and the deductible limit for a family must be at least $2,100, as of Dec. 2010. Individuals can pay up to $3,050 into an HSA each year, and for a family, the limit is $2,300.

    HSA Features

    • You can open an HSA with a financial institution, such as a bank or insurance company. Some employers set up HSA plans for their employees. The account has to be a recognized HSA account, and you cannot convert an existing savings account into an HSA. The money that you pay into an HSA account is tax free from your earnings. Any interest that money in your HSA earns is not taxed, and you do not pay tax on any money that you withdraw to pay for medical costs. Employers may also pay into employee HSAs free of tax.

    Alternatives to HSAs

    • Prior to the introduction of HSAs in 2003, California was one of 26 states that operated Medical Savings Accounts (MSA). MSAs allowed you to pay for deductible medical expenses, but your insurance policy did not have to be a qualifying HDHP. If you had a California MSA prior to the introduction of HSAs, you can still contribute to the MSA, but you cannot convert an MSA to an HSA. California also allows you or your employer to pay into a Flexible Spending Account (FSA). Flexible spending accounts can be used to pay medical cost deductibles, and can also be used to pay for benefits that your insurance does not cover, such as dental care, eyeglasses and over-the-counter medicines.

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