3 Steps to an HSA

1. Enroll in a qualified High Deductible Health Plan.

To open a Health Savings Account (HSA), you must be covered by a qualified High Deductible Health Plan (HDHP).

The first main feature of qualified HDHP coverage is that you are responsible for your own medical expenses up to a certain dollar amount — at least $1,150 in 2009 for individual coverage.  This amount is called the deductible.

The second main feature of HDHP coverage is that if you incur major medical expenses, the maximum you have to pay is limited to a fixed amount determined by the federal government.  This is called the maximum out-of-pocket.  The minimum deductible and maximum out-of-pocket for individuals and families in 2009 are shown below:

The third key feature to an HDHP is the premium.  Most people with an HDHP benefit from lower monthly premiums, in exchange for a higher deductible and responsibility for medical expenses until that annual deductible is met.

A final factor to consider when evaluating the HDHP option is preventive care.  Many HDHP plans cover medical expenses such as well-child visits, annual physicals, cholesterol checks, etc. before you have met your deductible.

2. Confirm that you are not covered by any health insurance other than an HDHP.

If the only type of medical insurance coverage you have is an HDHP, you can go directly to Step 3.  If you are covered under a medical insurance policy that is not an HDHP, you may not be eligible for an HSA.  Coverage under Medicare, a general purpose Flexible Spending Account (FSA) or Health Reimbursement Account (HRA), or coverage under another person’s policy that is not an HDHP, could make you ineligible for an HSA.  For questions concerning your individual status, contact your benefits manager or tax advisor.

3. Open an HSA.

Once your HDHP is in place, you may open an HSA at an approved institution, such as E Federal Credit Union.

Opening and beginning to fund an HSA as soon as your insurance policy is in place will ensure that you can pay for eligible medical expenses as they arise.  You will also be able to maximize the tax advantages of this type of account, since HSA deposits, withdrawals for eligible expenses, and interest/investment gains are tax free.