Health Spending Accounts and High Deductible Plans
There are several types of health spending accounts that help pay for health care costs with tax free money. These accounts may be combined with high deductible health plans and are often called Consumer Driven (or Directed) Health Care, because you are managing more of your own health care cost decisions. Usually, you will pay more of your own money and may have fewer benefits that in an HMO.
High Deductible Health Plan (HDHP)
An HDHP is California health insurance that has a high deductible. You must pay this deductible each year, before the plan will start to pay some or all of your health care costs.
Some HDHPs pay for preventive care and check-ups before you pay your deductible. These services may have co-pays.
An HSA is a tax-free savings account. You can sign up for one if you have a qualified High Deductible Health Plan. The deductible for these plans must be a certain amount for an individual and for a family. You can use the money in your HSA to help pay this deductible.
You can sign up for an HSA with a bank, credit union, insurance company, and other approved company. Your employer may also set up a plan.
- You or your employer may put tax-free money into your HSA.
- Interest earned on your account is tax-free.
- Withdrawals for health care costs are tax-free.
- Unused funds and interest are carried over, without limit, from year to year.
- There are many other rules. See the IRS document at www.irs.gov/publications/p969/ar02.html#d0e954.
A Medical Savings Accounts (MSA) is an old kind of HSA. If you have a MSA, you can keep it or move your money into a HSA.
Health Reimbursement Account (HRA)
These are tax-free accounts to pay health care costs. They are not insurance. An employer can set one up and put tax-free money into the account. You can use the money in the account to pay your deductible and co-pays.
Flexible Spending Account (FSA)
These are tax-free accounts to pay health care costs. They are not insurance. An employer can set one up. An employee can put tax free money into the account. You can use the money in the account to pay your deductible, co-pays, and other health care costs that your health plan does not cover. You can also pay for benefits your health plan does not cover, such as over-the-counter medicines, eyeglasses, or dental care.
Resources
Internal Revenue Service
Form 969, for information on Health Savings Accounts and Flexible Spending Accounts
1-800-829-1040 (many languages)
1-800-829-4059 (TTY)
www.irs.gov (Spanish)
National Association of Health Underwriters
Information on Health Savings Accounts
www.nahu.org/consumer/HSAGuide.cfm
