I have a pretty uninspiring health care plan.
I guess you don’t appreciate what you have until you no longer have it. My previous job had excellent health care. Both medical and dental were top notch and cost next to nothing. I had a fair copay and almost never needed to pay beyond it.
These days, instead of having the “Cadillac” plan, I have the “Ford Pinto” plan. It covers very little, and requires me to spend thousands of dollars before it will pick up anything. It’s known as a High Deductible Health Plan (HDHP), though this particular deductible is extra-high.
Right now, in the U.S., it’s open enrollment for health care. (Public service announcement: please don’t forget to sign up! Bad insurance is still better than no insurance.) So some of you might be in a similar situation, picking a new plan.
The one thing that makes the HDHP palatable is that it makes one eligible to contribute to an Health Savings Account (HSA).
HSAs are great, or at least better than not having it. But the question of how much one can contribute to an HSA is surprisingly not straight-forward.
Table of Contents
If you are eligible for the whole year
If you have an HSA-eligible plan for the entire year, it’s the easiest situation, being based only on the calendar year and whether you’re single or have a family:
[table caption=”HSA maximum contributions (full year eligibility)”]
If you’re reading this in the future, it’s likely, though not guaranteed, that the limits will increase linearly from the above.
And remember that if you’re 55 or older, you can add $1,000 to the above number as a “catch-up” contribution.
If you lose coverage mid-year
If you have coverage at the beginning of the year, and then you change plans (change in job, a different plan is offered) and no longer have an HSA-eligible plan, then your contribution is prorated based on how many full months you had coverage. (Partial months don’t count.)
[table caption=”HSA maximum contributions (partial year eligibility, single)”]
[table caption=”HSA maximum contributions (partial year eligibility, family)”]
If you gain coverage mid-year
If you, like me, get a HSA-eligible plan mid-year, you have the same contribution table as above. (And if you, like me, gained your coverage on the 2nd day of the month, you’re also likely suitably annoyed.)
But there is one exception, one so byzantine and odd that I have to quote it directly from the IRS:
Last-month rule. Under the last-month rule, if you are an eligible individual on the first day of the last month of your tax year (December 1 for most taxpayers), you are considered an eligible individual for the entire year. You are treated as having the same HDHP coverage for the entire year as you had on the first day of the last month.
Putting aside the weirdness of December not being the last month for everyone, this is strange. It’s saying that if you have coverage in December, it’s as if you had coverage for the entire year, as far as the HSA is concerned.
It gets weirder though. There is a situation called the “testing period” if the above applies to you. It states that under certain conditions, if you had coverage in December, you can contribute the full-year amount to your HSA.
Yes, that contradicts the table above.
The testing period is a strange beast, and it deserves a post all its own. But you are invited in the meantime to read the IRS rules about it.
Or you can ignore it entirely, and just use the chart above. You definitely can’t go wrong that way.
If you have an HDHP plan, you know it likely doesn’t cover very much. The HSA is a consolation prize, allowing you to contribute pre-tax money to your health care costs. Maximizing your contributions here will save you the most money.
And again, if you haven’t signed up for health care this year, go do that now!