When people say HSAs, they typically mean a Qualified High Deductible Health Plan (QHDHP) with a Health Savings Account (HSA.). 

A QHDHP is a medical plan design that, like a PPO or HMO, determines how much of each healthcare expense you pay out-of-your-pocket and how much is paid by the insurance company.  An HSA is a financial account that allows you to use pre-tax money to pay for your out-of-pocket healthcare expenses.  While these are two separate items, they are directly related since a person can only open and contribute to an HSA if they are enrolled in a QHDHP and meet certain other criteria. 

Details of QHDHPs:
QHDHPs begin with being defined by a minimum deductible amount.  For 2008, the minimum deductible is $1,100 for employee only coverage and $2,200 for family coverage.  For 2009, the minimum deductible levels are $1,150 for employee only and $2,300 for family coverage.  Deductibles are on a policy year basis.

In addition, for 2008 a QHDHP must have out-of-pocket expenses equal or less than $5,500 for employee only coverage and $11,000 for family coverage.  For 2009, the limits are $5,800 and $11,600 for employee only and family coverage respectively.

There are fundamental differences between QHDHPs and traditional PPOs.  With a QHDHP, all eligible medical expenses are subject to the deductible and the deductible must be met before the benefit plan pays for any of the medical expenses.  The one exception is preventive care.  This is typically covered at 100%, although what is defined as preventive care varies by insurance carrier.

Since all eligible medical expenses are subject to the deductible, QHDHPs do not have copays for physician visits or prescriptions prior to the deductible being met.  The deductible is an integrated deductible, meaning there is only one deductible that applies for both medical and pharmacy.

As an example, with a QHDHP, if you go to the doctor for anything that is not considered preventive, you pay the entire physician payment, not just the $20 or $30 copay.  All eligible expenses, including those within the deductible, receive the negotiated discounted rate of the insurance carrier.
 
Details of HSAs:
An HSA is administered by a trustee, which can be a bank, insurer, or other IRS-approved entity. 

HSAs provide the only triple-tax free option today in America – the money goes in before taxed, grows without being taxed, and comes out without being taxed if it is used for qualified medical expenses.  Qualified medical expenses are defined the same way for HSAs and FSAs using Section 213(d) of the IRS tax code and include deductibles, coinsurance, dental expenses, over-the-counter medication, lasik eye surgery, and many other items.

HSAs have several advantages over FSAs, the biggest of which is that they are not subject to the use-it-lose-it rule.  If the money in the HSA account is not used by the end of the year, the balance simply rolls over until it is used sometime in the future.  HSAs earn interest and can be invested in mutual funds and other investment vehicles.

Due to the tax advantages of HSAs, the government has placed limits on contributions.  For 2008, a person with employee only coverage can contribute up to $2,900 per year and a person with family coverage can contribute up to $5,800.  For 2009, these limits are $3,000 and $5,950 respectively.  In addition, a person age 50 or older can also contribute additional “catch-up” provisions.  

Since the HSA guidelines are written by U. S. Department of Treasury, there are many complicated rules similar to those of the tax code.  At Progressive Benefit Solutions, our expertise on QHDHPs and HSAs ensure that our clients maximize their use of these products and also remain in compliance while using them.

Finally, due to the many differences between QHDHPs and traditional plans such as PPOs, plus the nature of the H.S.A., it is critical that a dynamic Employee Education plan in implemented for employees.  At Progressive Benefit Solutions, we have developed specific modules, HSA101, HSA201, and HSA301 to facilitate employees understanding of these products and how to use them correctly.