Health Savings Accounts (HSAs), part of the consumer-directed approach to health care, provide a tax-favored way for individuals to save for and pay for medical expenses. HSAs also offer employers a way to better define their contribution for health care and transfer to employees more control over how health plan dollars are spent.
To add an HSA to a benefits menu, an employer must offer a high deductible health plan (HDHP). An individual must be covered by an HDHP to participate in an HSA.
The basic definition of an HDHP is this: A plan with a minimum deductible of $1,100 for individuals/$2,200 for families, and an out-of-pocket expense limit that does not exceed $5,600 for individuals/$11,200 for families (2008 limits). Previous guidance clarifies that “family coverage” means any coverage other than self-only.
Notice 2004-71 provides extensive guidance on what types of expenses are counted as out-of-pocket expenses, for purposes of determining whether the plan meets the requirement that such expenses not exceed the published limits. As would be expected, amounts paid to satisfy a deductible are counted, as are copayment and coinsurance amounts, even if they would not count against the deductible under the terms of the plan. In the case of cumulative embedded deductibles under family coverage, a plan would not qualify as an HDHP for families where the number of covered individuals is large enough that the cumulative deductible could exceed the $11,200 limit (such as for a family of six with a per person deductible of $2,000 and no cap or maximum family deductible). Notice 2004-71 lists certain types of expenses that are not counted toward the out-of-pocket expense limit:
- Amounts paid above the usual, customary, and reasonable (UCR).
- Precertification penalties, including higher coinsurance amounts for out-of-network providers.
- Amounts paid for services that are not covered benefits under the plan.
- Amounts paid after the lifetime plan maximum is reached (the Notice cites as reasonable a plan with a $1 million lifetime benefit maximum).
- Amounts paid after annual or lifetime limits on specific benefits are reached, so long as these limits are reasonable.
On this last bullet point, Notice 2004-71 states that restrictions or exclusions on specific benefits are reasonable only if “ … significant other benefits remain available under the plan in addition to … ” those subject to the restriction. This Notice provides an example of a plan (self-only coverage) with a $1,100 deductible (2008 minimum deductible) and 100% plan coverage thereafter, up to a $1 million lifetime maximum, and a $10,000 annual limit on benefits for any single condition. Because the annual single-condition limit is not reasonable, expenses incurred by an individual after meeting the deductible are counted toward the HDHP $5,600 out-of-pocket expense limitation (2008 individual out-of-pocket maximum).
A plan without an expressly stated limit on out-of-pocket expenses can still qualify as an HDHP, if the terms of the plan are such that the $5,600 individual/$11,200 family maximum cannot be exceeded. For example, a plan with a $2,000 deductible for self-only coverage that pays 100% of expenses after the deductible satisfies the maximum out-of-pocket requirement for HDHPs, even if it does not contain an express out-of-pocket maximum.