Sunday August 18, 2019
Health Savings Account Limits Published
U.S. employers offer several different types of health care plans. These may include a Healthcare Maintenance Organization (HMO), a Preferred Provider Organization (PPO) or a High Deduction Health Plan (HDHP). The HDHP enables participants to use a Health Savings Account (HSA).
In 2020, the HDHP must have a deductible of $1,400 or greater for individual coverage or $2,800 or greater for family coverage. The annual expense limit for deductibles, co-payments or similar amounts is $6,900 for individuals and $13,800 for family plans.
The HMO, PPO and HDHP plans each have advantages and disadvantages. We will consider the advantages and disadvantages of the HDHP and HSA plans.
HDHP and HSA Advantages
- Broad Coverage - Most HDHP plans cover a wide range of medical care. IRS Pub. 502, Medical and Dental Expenses, explains most types of the covered services.
- Pre-Tax Contributions - Employees may make pre-tax contributions to an HSA through payroll deductions. Some employers match the employee contribution. The amount of the employee and employer contributions may not exceed the annual limit.
- Tax-Free Growth and Withdrawals - An HSA will grow tax-free. Withdrawals for qualified medical expenses are also tax free. The HSA balance over time may grow to a substantial amount. It remains the property of the participant.
- Convenience - Many HSA plans offer a debit card to enable participants to pay for prescriptions and other medical expenses.
HDHP and HSA Disadvantages
- High Deductible - While the HDHP premiums are often lower than other plans, the employee may pay a higher deductible amount. The annual HSA contribution may be fully used to cover medical expenses for individuals who have a significant medical condition.
- Potential Taxes - If HSA funds are withdrawn for nonmedical purposes before age 65, a participant must pay income tax plus 20%. After age 65, the withdrawal for nonmedical purposes will trigger income tax but no penalty.
- Records - If you spend funds for medical purposes from your HSA, you will need to keep receipts to prove that these were qualified medical expenses.