Health Savings Accounts, which are known as HSAs, and Health Maintenance Organizations, which are known as HMOs, are both vehicles designed to help you keep your health care costs down. An HMO has more of an overarching influence on you, serving as the framework for your overall health care. An HSA serves a more narrow purpose, helping to lower your overall costs by providing tax benefits on the money you use for medical expenses.
An HSA is only an option if you have a high-deductible health plan, and you do not have any other form of coverage that provides complete coverage for health expenses without a copayment or deductible. The deductible requirements for 2012 are a minimum of $1,200 for an individual plan and $2,400 for a family plan. For 2013, the minimum will rise to $1,250 for an individual and $2,500 for a family. You also cannot be enrolled in Medicare or claimed as a dependent on another person's tax return.
In order to qualify for an HMO, you simply need to be employed with an organization that belongs to an HMO for its health insurance plan or you need to purchase an individual plan with the HMO. Different HMO plans have different eligibility requirements for individual buyers. For instance, some HMOs may require that you live or work in a specific coverage area. An HMO also may require that an individual buyer not have certain preexisting medical conditions. However, part of the federal Affordable Care Act is designed to prohibit insurers, including HMOs, from denying coverage to someone because of a preexisting condition starting on Jan. 1, 2014.
You establish an HSA with a trustee licensed to operate an account, typically a bank, insurance company or some other entity that is qualified to oversee individual retirement accounts or Archer Medical Savings Accounts. An HSA allows you to set aside funds in an interest-bearing account for medical expenses. A major advantage of the HSA is that you can claim a tax deduction on all contributions that you make to the account, and the distributions are tax free if they go to pay a qualified medical expense. You also are not required to spend the funds in the account during a set time period. Instead, any unused funds roll over in the account from one year to the next.
An HMO is a managed care health care organization, meaning it manages health care services for individuals. Businesses and other employers join HMOs in order to manage the health care plans for their employees, but individuals and families also can join the network. An HMO purchases health services for large groups of people. HMOs largely limit the doctors and medical facilities that patients visit for care to those that are part of the HMO's network. The HMO also will not cover all medical expenses in a plan, particularly if they are for non-emergencies that were treated outside of the HMO's network. HMOs keep costs relatively low for patients, limiting their share of most medical expenses to a copayment.
Both HSAs and HMOs are funded through a combination of sources, often as part of an employee compensation package. You can make contributions to an HSA account yourself, including through a regular paycheck withdrawal, or the account can receive contributions from anyone else, including regular contributions from an employer. In an HMO, you can contribute funds in the form of regular withdrawals from your paycheck with your employer also contributing at scheduled intervals. Or, if you enroll in a plan directly with the insurer, you can pay on a regular billing schedule.
- Internal Revenue Service: Health Savings Accounts and Other Tax-Favored Health Plans
- U.S. Department of Treasury: Health Savings Accounts
- CBS News; HMOs Explained
- Blue Cross Blue Shield of Illinois: Types of Health Insurance Plans
- U.S. Department of Health and Human Services: Health Maintenance Organization
- Society for Human Resource Management; For 2013, Higher Limits for HSA Contributions, Out-of-Pocket Expenses for High-Deductible Plans
- U.S. Department of Health and Human Services: Timeline of the Affordable Care Act