Most employees enrolled in a QHDHP are eligible to open a Health Savings Account (HSA), a type of savings account to pay qualified medical expenses. This HSA can be funded by a combination of employer and/or employee contributions – both contribution types are tax deductible.
Funding options are flexible too. Employers can allow employees to elect to deposit money into an HSA via payroll deduction. The HSA funds can be used to pay for immediate or future health care expenses such as deductible, copays and coinsurance, or medical expenses that aren't covered by the plan. The list of qualified medical expenses that can be paid with an HSA is determined by the IRS and can be found in IRS Publication 502.
Employees can also let their HSA dollars accumulate. These funds earns interest, tax free. When money is needed to pay medical expenses, the withdrawals are also tax free. Highlights:
Lower premiums compared to many fully-insured medical plans.
Employer contributions are exempt from federal and FICA taxes
Employee contributions in a given year are a 100% write-off against income taxes
Deductible is reached through combined medical and prescription costs, not separate totals.
D = Deductible
D/20% = Deductible applies first, then 20% coinsurance.
1The deductible on the family plan is non-embedded. If there is only one person enrolled on the plan, the Single deductible amount applies. If there are two or more members on the plan, the full Family deductible must be met before the plan begins to pay.