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OPM.gov / Insurance / Postal Service Health Benefits Program / Health Savings Accounts /
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Health Savings Accounts

Introduction

A High Deductible Health Plan (HDHP) with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA) provides traditional medical coverage and a triple-tax advantaged way to help you build savings for future medical expenses while providing you greater flexibility and discretion over how you use your health care benefits. The tax advantages are that you may contribute funds to your HSA for a tax-deduction, earn interest on the account tax-free, and withdrawals are not taxed for qualified medical expenses.

An HDHP may have higher annual deductibles than a traditional health plan. With the exception of preventive care, you must meet the annual deductible before the plan pays benefits. You pay nothing for preventive care services received from an in-network provider.

When you enroll in an HDHP, the health plan will ask questions to determine if you are eligible for a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). If you are eligible for an HSA, the plan credits a portion of the health plan premium into your account each month. You may also contribute to your HSA up to the IRS maximum amount. You choose whether to use your HSA funds to pay for your qualified medical expenses under your deductible or to leave in the account to continue to draw interest tax-free. Even if you change plans, the HSA is yours to keep. Withdrawals from an HSA aren’t taxed as long as they are used to pay for qualified medical expenses. 

If you are enrolled in Medicare, you are not eligible for an HSA. The Plan will provide an HRA instead. If you are provided an HRA, the plan will credit you a set amount at the beginning of the year. You are also protected by out-of-pocket maximums. The maximum out-of-pocket limits for HDHPs are based on IRS rules.

Worksheet

High Deductible Health Plans (HDHP) with a Health Savings Account (HSA) allow you to set up a savings account in which you can accumulate additional money on a tax-deductible basis to pay for current or future medical expenses. Both the Government (through a pass-through by way of your health plan) and you can contribute.

While HDHPs with HSAs may seem similar to health care flexible spending accounts (FSAs) and traditional insurance, because both enable you to pay for eligible medical expenses with tax-free dollars, the funds in an HSA can accumulate without limit year after year, while the funds in a FSA must be used every year or else they are forfeited.

HDHPs provide you comprehensive health benefits coverage for major medical costs in a tax-advantaged way plus they help you build savings, through your HSA, for future medical expenses. After you meet the plan's annual high deductible, your HDHP pays benefits like traditional health benefits plans.

HDHPs with HSAs give you greater control over how your health care dollars are spent-both out-of-pocket and funds from your HSA. As with most health benefit plans, HDHPs provide more cost-effective coverage when you use network providers.

This is how an HDHP works -

  1. You enroll in an HDHP under the PSHBP.
  2. Your plan establishes an HSA with a fiduciary (each HDHP has more information on how this step works).
  3. Your plan contributes money into your HSA (the premium pass through).
  4. You can make additional tax-deductible contributions into your HSA, up to the maximum allowed for that plan, generally the plan's deductible.
  5. When you need preventive care, your plan will provide it without cost to you, subject to any limits outlined in the plan's brochure.
  6. When you need non-preventive health care, you pay the full cost of that care with funds from your HSA or out of pocket, up to your plan's high deductible.
  7. If you reach the catastrophic limit, your HDHP will provide needed care with no charge to you (assuming you use in-network providers).

With this framework in mind, you may wish to consider a few important points as you compare different HDHPs with each other and compare HDHPs with traditional health benefits plans. The accompanying worksheet walks you through several steps to help you decide if an HDHP is right for you.

  1. You should consider a plan's premium and your projected out-of-pocket costs before benefits begin under that plan, in conjunction with the plan's co-insurance (or co-payment) rates. This gives the true cost for that plan.
  2. It will be to your advantage to contribute as much of your own money into your HSA as is allowed, because you make those contributions with tax-deductible dollars (even if you don't itemize on your tax return). Thus, you save the money that you would have otherwise paid in taxes. Contributing the maximum amount with tax deductible dollars reduces your net out-of-pocket costs before plan benefits begin, as well as your maximum out-of-pocket expenses. Plus, funds in your HSA can accumulate year after year without limit or possibility of forfeiture.
  3. Remember that preventive care is NOT subject to the high deductible. Absent other health care needs, if you contribute a higher amount to your HSA, you get a higher tax deduction plus a higher balance in your HSA to use for future expenses. Since your out-of-pocket cost before plan benefits begin also defines the maximum amount of personal, tax-deductible, contributions you can make, contributing a larger amount isn't necessarily bad. If you use a relatively low amount of health care and you can afford to make the maximum contribution, you may be attracted to these aspects of HDHPs with HSAs.
  4. When reviewing how much you may have to pay out-of-pocket with an HDHP, remember that unlike traditional plans, HDHPs count ALL covered expenses toward your catastrophic limit. Once you reach that limit, the HDHP provides all covered benefits without requiring any payment from you (assuming you use network providers). In traditional health benefits plans, deductible amounts you pay generally do NOT count toward the plan's catastrophic limit and you may have to pay some types of co-payments without limit (e.g., for drugs). If you use a relatively large amount of health care, you may be attracted to this aspect of HDHPs.

Enter the annual premium _________ and coinsurance rate(s) ________

Enter the amount of the plan deductible ________

Subtract the Plan's Annual Premium Pass-Thru ________

Total ________

This is your out-of-pocket cost before plan benefits begin and also is the maximum amount of tax-deductible personal contributions you can make (before catch-up contributions applicable to those age 55-65). Preventive care is not subject to the high deductible.

Enter the maximum amount of your personal contributions* ________

Multiply by 1.00 minus your marginal income tax rate ________

This is the after-tax cost of your maximum personal contribution ________

Enter the plan's catastrophic limit ________

Subtract the Plan's Annual Premium Pass-Thru ________

Total out-of-pocket exposure** ________

*  Take .9167 (11/12ths) of this amount before calculating your maximum amount of personal contributions.

** Assumes you use in-network providers and don't use HSA funds for medical or other expenses not covered by your HDHP.

File Description
HSA Net Amounts & HDHP Benefits You can find monthly premiums, contributions to your HSA, and the amount you can contribute to your HSA, for each PSHB HDHP. You can also compare benefits information among HDHPs such as deductibles, catastrophic limits, coinsurance, copayments, and preventive services provided before the deductible.

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