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!