1. What is an HSA?
  2. How to Qualify to Contribute to an HSA
  3. How Much Should You Contribute to an HSA?
  4. How and When to Use Your HSA Funds
  5. HSAs, FSAs and Limited-Purpose FSAs
  6. HSA Strategies for Different Life Stages
  7. Using Your HSA as a Retirement Savings Tool
  8. The Bottom Line

You can only use a health savings account if you have a high-deductible health insurance plan and no other health insurance, including Medicare. (For details, see Can Medicare Recipients Also Have an HSA?) If you have a catastrophic health insurance plan, it counts as an HDHP and you’re eligible to contribute to an HSA. 

How High Is ‘High?’

The federal government decides what will be considered “high” for the deductible each year. For 2018, that amount is $1,350 or more for an individual plan (or “self-only coverage,” to use IRS lingo) and $2,700 or more for a family plan. Also, an HDHP’s out-of-pocket maximum can’t be more than $6,650 for an individual plan and $13,300 for a family plan. (Learn more in Rules for Having a Health Savings Account and How do I know if I qualify to open a HSA?)

To be eligible to contribute to an HSA, you cannot have a separate prescription drug insurance plan that kicks in before you meet your HDHP’s deductible. Prescription discount plans are not considered insurance and are allowed. You’re also allowed to have dental, vision and long-term care insurance. If someone else claims you as a dependent on their tax return, however, you aren’t eligible to contribute to an HSA.

You don’t have to get an HSA through an employer; you can open one on your own at the financial institution of your choice. As long as you have a high deductible health plan, you can be self-employed, or even unemployed, and contribute to an HSA.

Getting Your Own HDHP

If your employer doesn’t offer a high deductible health plan, you’ll have to forego your employer’s group health insurance and purchase your own high deductible policy in the health insurance marketplace, which was established under the Affordable Care Act, in order to qualify to contribute to an HSA. (For tips, see How to Shop for Health Insurance.)

For many workers, this option won’t make sense. Employers often pay for a large percentage of workers’ health insurance premiums. This benefit is basically additional compensation to you that you don’t pay taxes on, and it often gets you a better health insurance policy at a lower cost than you could purchase on your own. If you opt out, you won’t usually be able to get, say, the $10,000 your employer would have kicked in toward your health insurance premiums as an addition to your salary. You’ll just lose it.

If your employer isn’t paying much toward your health insurance or you don’t like the plan options available, opting for a high-deductible marketplace plan might make sense. Just be aware that you may not be eligible for subsidies. 

Can You Afford the Premiums?

An HDHP will have lower premiums than an equivalent plan with a lower deductible, but the premiums need to be low enough to provide savings you can use to help afford the risk that you’ll have to meet the plan’s deductible before your coinsurance picks up the tab. If you can’t, a plan with a lower deductible might make more sense for you – if you can afford its higher premiums. You’ll need to do the math for the options available to you from your employer and/or through your state’s health insurance marketplace to see what you’re most comfortable with. Keep in mind that under the Affordable Care Act, certain types of preventive healthcare are covered before you meet your deductible. These include annual physicals, routine prenatal care, immunizations and certain preventive medications.

In the next chapter, we’ll look at how much you are allowed to contribute to an HSA and how to decide what amount to put into your account each year.

How Much Should You Contribute to an HSA?
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