What is everyone talking about!?? HSA's and QHDHP

I talk to people everyday about Health Savings Accounts (HSA) and most of them just don’t understand HSA’s.   Let’s face it, the government regulates these things so it’s got to be confusing – when was the last time they made something simple?

They have been around since 2003 and they are finally gaining popularity.   So, here is my effort at trying to explain them!

There are 2 parts to an HSA: Part 1, you have a Qualified High Deductible Health Plan (QHDHP) through an insurance company.   This is your health insurance.   The QHDHP legally allows you to have part 2, a special bank account called a Health Savings Account (HSA) that allows you to pay for healthcare expenses tax free.  To help confuse you, people use the term HSA to refer to both the QHDHP and the actual HSA.

Part 1

What is a QHDHP?  Well it changes every year but, for 2010:

•    Minimum $1200 single or $2400 family deductible

•    No first dollar copays – except for preventive care on some plans

•    Must be filed with the state as a QHDHP

Part 2 – The cool part

What is an HSA?

This is an actual bank account.  It can be at any bank that offers HSA’s (almost every bank now).  This account is usually free of charge (If it’s not, you may want to try a different bank) and earns interest.   

The money you put in this account is tax free and can be used for any “qualifying medical expense.”   This means that the expense has to fall within certain IRS guidelines, which is probably more than you would expect!  For example:

•    All the normal stuff – Doctor & Hospital expenses, prescriptions

•    Over the counter drugs – cold medicine, aspirin etc

•    Vision exams, contacts, glasses

•    Dental expenses

Ok, so now let's see how this would work if you had some medical expenses.  Let's say you have an insurance plan that has a $2000 deductible and 100% coinsurance.  (Plan pays 100% after you meet the deductible.)  

Claim#1

Claim #2

That's enough for one day.  I'll get into why you might want one of these plans and how much they cost next time.   In the meantime if you have any questions please let me know!

COBRA - What It Is & How Long It Lasts

Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA) health benefit provisions in 1986. The law helps provide continuation of group health coverage that otherwise might be terminated.  The key to this is that the employer must have a minimum of 20 employees.

How long you can continue your health benefits with COBRA depends on why you are eligible.  Most people qualify of 18 months of extended coverage but it is possible to qualify for 36.

18 Month Qualifying Events:       

•   Voluntary termination
•   Involuntary termination (Gross misconduct exception)
•   Reduction of hours

36 Month Qualifying Events:          

•   Death of an employee (Spouse & Dependents can stay on plan)
•   Employees medicare entitlement (Spouse & Dependents can stay on plan)
•   Divorce
•   Dependent child in no long a dependent

Coverage begins on the date that coverage would have been lost by reason of a qualifying event and will end at the end of the maximum period. It may end earlier if:

Premiums are not paid on a timely basis

The employer ceases to have a group health plan (this is happening More and more)

After the COBRA election, coverage is obtained with another employer group health plan.

After the COBRA election, a beneficiary becomes entitled to Medicare benefits. 

For additional information please visit: 

The Dept of Labor web site