Health Insurance Navigator

By Lisa Zamosky

According to a recent survey by consulting firm Towers Watson, 70% of large companies say they will offer employees high-deductible health insurance plans (HDHPs) by 2013.

HDHPs – as the name suggests – feature high deductibles that require consumers to shell out large sums of their own money before insurance starts to pick up the bills. Typically, these plans are paired with personal health savings accounts that allow people to pay for medical services with pretax money. Health Savings Accounts, or HSAs, are among the most common type of plan paired with HDHPs.

Given that their growth in recent years has been steady and is expected to increase, here are 10 things you should to know about HSAs:

1. To open an HSA, you must be enrolled in a qualified high deductible health plan (there are high deductible health plans that are NOT qualified, so you need to check). In 2012, your health plan must have a minimum deductible of $1,200 for an individual and $2,400 for a family in order for you to qualify.

2. You cannot be covered by another health insurance plan and be eligible for an HSA. Supplemental insurance, such as dental, vision, or long-term care does not count as health insurance and won’t interfere.

3. With an HSA you can set aside money tax-free to spend on a range of medical expenses, including hospital care, doctor visits, prescription drugs, and dental care. You can check the IRS’ website for a full list of qualified medical expenses.

4. The money you deposit in an HSA account accumulates and can be withdrawn tax-free as long as you spend it on qualified health care costs.

5. HSA money is invested similarly to an IRA or 401k account: stocks, bonds, mutual funds, and CDs are all allowable investment tools for HSA money.

6. The money you invest in an HSA automatically rolls over year after year.

7. There are limits to how much money you can set aside in a given year in an HSA, and the amounts can change from year to year. For 2012, individuals can invest a total of $3,100 and families can set aside no more than $6,250. If you’re 55 or older, you can sock away an additional $1,000 a year through what’s called a “catch up” contribution.

8. As with other investment accounts, you need to watch for hidden costs that sometimes come with setting up HSAs, including monthly fees and extra charges for using checks or debit cards connected to the account.

9. Once you enroll in Medicare you can no longer contribute to your HSA account. However, you can still use the money you’ve accumulated to pay for medical expenses, including Medicare premiums, deductibles, co-insurance and co-pays, tax-free.

10. HSAs aren’t for everyone. If you have a lot of medical expenses and/or don’t make enough money to cover 100% of your costs before you meet a high deductible, these plans may not be for you. As far as tax benefits provided by HSAs, people with higher incomes tend to gain the most benefit.

Your turn: Do you have an HSA account? Share your experience of the good and the bad in the comments section below.