There’s a world of difference between an HSA and an HMO. When you start looking into the differences among an HMO vs. a PPO vs. an HSA or an HDHP vs. an HMO, the acronyms and what they mean become even more confusing. It’s crucial to know the bottom line when it comes to your health insurance and your taxes.
Health Savings Accounts
HSAs work in conjunction with high-deductible health plans. These accounts are set up with a qualified HSA trustee, such as a bank, either through an employer or as an individual. Married couples can each have their own HSA but not a joint account. However, one or both parties may opt for family HSA coverage. If your employer contributes to the HSA, that amount is excluded from gross income. Earnings and interest in the HSA are tax free, and any distributions used for qualified medical expenses are also tax free. If you leave your job, you can take your HSA with you.
When you compare an HDHP vs. an HMO, you’ll see that the former costs more out of pocket because of its high deductible, but you can pay those deductibles tax free up to a certain limit from your HSA.
Health Maintenance Organizations
When choosing health insurance plans, many employees and individual purchasers must decide which type of plan best serves their needs. An HMO offers you the lowest prices for insurance, but you are more limited in your choice of health care providers, as you can only use those who are in the network. You will also need a referral from your primary care doctor to see a specialist. On the plus side, an HMO requires very little paperwork on the insured’s part, has no or very low deductibles and provides a broad range of preventive health care. A referral from your primary care doctor to an out of network specialist is covered at a particular percentage. With an EPO vs. an HMO, for example, the exclusive provider organization plan has lower rates, but you can never go out of network and expect any reimbursement. However, you will not need to see your primary care doctor for a referral to an in-network specialist.
HSA Contributions 2018
Under the Tax Cuts and Jobs Act, signed into law by President Donald J. Trump on December 22, 2017, new calculations of HSA limitations were imposed. Contributions to HSAs for individuals are capped at $3,450. Those age 55 or over may add an additional $1,000, for a $4,450 total. The original limitation for HSA family contributions as announced by the IRS was $6,850. However, the IRS received a lot of protest from employers, individuals and payroll administrators that such a change would prove expensive and hard to implement. The IRS then decided to let taxpayers use $6,900 for the annual HSA contribution limit for families, although if the employee or individual is over age 55, she may add another $1,000, for a total of $7,900. Medical and dental expenses are only deductible on federal income taxes if the expenses exceed 7.5 percent of the taxpayer’s adjusted gross income.
HSA Contributions 2017
For 2017, the annual limit on HSA deductions for contributions is $3,400 for individuals and $6,750 for those with family coverage, although an extra $1,000 in catch-up contributions is available for those over age 55. Deductible medical and dental expenses must exceed 7.5 percent of the taxpayer’s adjusted gross income.
- IRS: Publication 969 (2017), Health Savings Accounts and Other Tax-Favored Health Plans
- Journal of Accountancy: IRS Gives Taxpayers Relief From Erroneous HSA Contributions
- IRS: Publication 502 (2017), Medical and Dental Expenses
- WebMD: Different Types of Health Plans: How They Compare
- eHealth: EPO Insurance Plans
- HSACenter: How Does an HSA Work?
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.