What is a High Deductible Health Plan (HDHP)? It’s a health insurance plan with a minimum annual deductible of $1,200 and a maximum of $5,950 for individual plans, or a $2,400 minimum and a $11,900 maximum for family plans. Blue Cross/Blue Shield, United Health Care, Aetna and some other health insurance carriers all offer HDHP plans. Generally speaking, premiums for such plans are lower than are premiums for HMOs, PPOs and other traditional types of medical insurance coverage.
What is a Health Savings Account (HSA)? An account set up by the insured (not the insurance company) through a bank or other “trustee” in conjunction with an HDHP. The insured deposits money into his/her HSA each year and then draws from the account in order to pay deductible medical costs. Money deposited to an HSA is tax deductible, but money withdrawn to pay medical costs is not taxable income.
What Tax Reporting is Required? Trustees report contribution amounts each year to the IRS on Form 5498 in much the same way that IRA contributions are reported. Distributions are reported on Form 1099-SA. Taxpayers must file Form 8889 with their tax returns to compute tax deductible contributions and to account for reported distributions.
What about Employer-Sponsered HSAs? An employees may start an HSA in conjunction with an employer-sponsered HDHP. Contributions made to an HSA through payroll deductions are made “pre-tax” and not reported as taxable wages on an employee’s W2 form. If employee contributions are made as part of a Section 125 plan, sometimes called a “flexible spending plan”, then the contributions also avoid payroll tax.