We were asked during a recent meeting about the meaning of “those letters” on an illustration. The letters referenced were QHDHP and HSA. In follow-up, rather than simply forwarding some sales collateral, we thought we would write up a quick primer on this topic.

What is a QHDHP? What is an HSA?

The government’s website, www.healthcare.gov, provides the following definition for a Qualified High Deductible Health Plan (QHDHP):

A plan with a higher deductible than a traditional insurance plan. The monthly premium is usually lower, but you pay more health care costs yourself before the insurance company starts to pay its share (your deductible). A high deductible plan (HDHP) can be combined with a health savings account (HSA), allowing you to pay for certain medical expenses with money free from federal taxes.

For 2022, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP’s total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can’t be more than $7,050 for an individual or $14,100 for a family. (This limit doesn't apply to out-of-network services.)

There is more detail about the requirements of these plans. On this website from the IRS, the following additional details are provided:

Other health coverage. If you (and your spouse, if you have family coverage) have HDHP coverage, you can’t generally have any other health coverage. However, you can still be an eligible individual even if your spouse has non-HDHP coverage, provided you aren’t covered by that plan.

Prescription drug plans. You can have a prescription drug plan, either as part of your HDHP or a separate plan (or rider), and qualify as an eligible individual if the plan doesn’t provide benefits until the minimum annual deductible of the HDHP has been met. If you can receive benefits before that deductible is met, you aren’t an eligible individual.

Other employee health plans. An employee covered by an HDHP and a health FSA or an HRA that pays or reimburses qualified medical expenses can’t generally make contributions to an HSA. FSAs and HRAs are discussed later.

While the insurance policies are provided by health insurers, the accompanying health savings accounts (HSA) are provided via financial services providers (e.g. banks, credit unions, broker-dealers, etc.) One example of such a provider, HSA Bank, describes here the virtues of HSA accounts:

• “A tax-advantaged savings account: that they can use to pay for eligible medical expenses as well as deductibles, co-insurance, prescriptions, vision expenses, and dental care.”
• “The potential to build more savings in self-directed investment options.”
• “Unused funds that will roll over year to year. There’s no “use it or lose it” penalty.”
• “Additional retirement savings. After age 65, funds can be withdrawn for any purpose without penalty, but may be subject to income tax if not used for IRS-qualified medical expenses.”

2023 limits

As described on the CMS website, the following limits are in place for 2023:

	2022		2023
	Self-only	Family	Self-only	Family
HSA contribution limits	$3,650	$7,300	$3,850	$7,750
HSA “catch-up” contributions (55 or older) per year	$1,000		$1,000

Also, the following additional insight is offered from CMS:

You can only contribute to your HSA when you’re enrolled in a qualified high deductible health plan with no other coverage that disqualifies you. Anyone can contribute to your HSA, like household members, friends, and employers. The table below shows the maximum amounts you can put into an HSA in 2022 and 2023. These limits may depend on the type of high deductible health plan coverage you have (self-only or family), your age, and when you qualified for an HSA.

If you’re 55 or older, you can contribute an extra $1,000 to your HSA each year. This is called a “catch-up” contribution. If your spouse is also 55 or older, they can make a catch-up contribution to their own account, if eligible, but not to yours.

The money you take from your HSA to pay for or be reimbursed for qualified medical expenses is tax free.

     If you take money before you’re 65 from your HSA for non-medical costs, or medical costs that don’t qualify, you’ll have to pay the federal income tax and a 20% tax penalty.
     If you take funds from your HSA after you’re 65 for non-medical costs, you won’t have to pay the 20% tax penalty, but you’ll still have to pay the federal income tax on that amount.

Key considerations

This summary is not intended to provide a comprehensive summary of the rules around QHDHP and HSA; We are hopeful these details are a helpful starting point for people starting to conduct research into the rules and processes around this approach to financing a family’s health insurance needs. For additional discussion or inquiry, please reach out to our team at Valhalla Business Advisors!