California Health Savings Account guide:

    Introduction       How it Works       Instant Quote       Networks       Eligible Expenses       FAQ's      Administrators


1. Introduction to Health Savings Account

BULLETIN: Effective Jan 1st, 2004, the new HSA (Health Savings Account) expanded the original MSA's (Medical Savings Accounts) to allow among others, the following improvements:

100% funding of the deductible up to set limits
Permanent longer needs to renewed
No longer requires self-employed status
Both employer and employee funding of accounts for Small Group policies

 Now...on to the Health Savings Account

Think of the HSA (health savings account) as a combination between a high deductible insurance plan and an IRA (individual retirement account)

                    - fund with pre-tax dollars 
                    - accrue interest tax-deferred
                    - pay out medical bills tax-free

Health Savings Accounts were created to go hand-in-hand with a qualified high-deductible health care plan so that individuals could pay less in monthly dues and put the savings (along with additional funds) in a tax-exempt Health Savings Account. A Health Savings Account allows you to use tax-free dollars to cover routine and minor medical expenses while you satisfy your deductible-expenses that would otherwise come out of your after-tax income.   

Let's take a better look at how the health plan works...essentially there are two parts...

2.  Health Saving Accounts - How it Works

The HSA actually has two components

    High deductible Insurance Plan         Tax-favored Savings Account

First, let's look at the insurance part of it.

At its most basic level, a Health Savings Account includes a high deductible plan.  You pay a monthly premium like any insurance plan to keep this protection in force.  Note that the premium is usually much cheaper than other plans.  

A deductible means that in a calendar year for covered expenses, you are responsible for 100% of the deductible amount before the company begins to pay.  The other important piece is the Maximum out-of-pocket which refers to when the insurance company then begins to pay 100% (we are talking about catastrophic care here).  Usually between the Deductible and the Maximum, you are paying a percentage.

Let's look at an example...

 Medical expense relating to surgery:   $30,000

    Insurance Deductible is $2,400
    Maximum is $3,200
    20% (of medical expenses) after deductible until you have
    met another $800 (up to your max) out of your pocket

In this case, providing you are in network for covered benefits, you would pay:

    Deductible at 100%             $2,400
    20% until total= $3,200        $  800
    Total out of your pocket       $3,200

Now keep in mind that if you stay in the network, you will receive negotiated rates, usually a 30-60% discount.  To understand why, you can check out our other section, 101.  Now, with most HSA plans, the deductible is all inclusive - hospital, doctor, prescription etc.. There may be certain preventative benefits which are handled separately so make sure to read the full plan brochure.  If you really want a great introduction to health insurance, check out our section Health Insurance 101, otherwise let's look at the exciting half...the Heath Savings Account.

Now let's look at the exciting part for self-employed and small business...the HSA savings account.

By the book, Health Savings Accounts are tax-favored accounts set up to pay for certain medical expenses and to allow for the build-up of savings to pay for future medical expenses.  Accounts are set up with banks and certain other qualified financial institutions.

Let's dig a little deeper...

You are allowed to fund this account with up to 100% (up to certain limits) of your plan's annual deductible (pro-rated for less than a year) with pre-tax dollars.  This account is set up at a separate institution than the insurance company.  The largest administrator with the best options are Wells Fargo, MSABank or FirstMSA.  Go here to get more information if you already have the insurance set up or want to investigate further.  

Money not used rolls over year to year.  In fact, it earns interest tax-deferred.  Past a certain limit, you can also choose to invest the excess depending on the bank or institution you choose to go with.  You can continue to add up to 100% of a year's deductible...year after year.  This money is separate from the premium you pay each month to keep your health insurance in place.  You own this money just like an IRA or savings account.  This is the first part...funding and growing pre-tax.  

The second part is where this plans actually surpasses an IRA...

For certain medical, dental, and long-term care expenses, payments made from your established and funded account is not taxed or penalized.  At 65 you are able to withdraw this money penalty-free but subject to income tax.  If you withdraw the money for non-eligible expenses before the age of 65, it will be subject to a 15% penalty and income tax.  

So to sum it up...

High deductible insurance plan combined with a tax-favored Savings account
  -fund with pre-tax dollars 
  -accrue interest tax-deferred
  -pay out medical bills tax-free

Now let's check out the monthly premium rates which are much cheaper than standard plans.

3.   Health Saving Accounts - Rates
Below you can find the rates for HSA plans offered by Blue Cross or Blue Shield of California.  But first, a key point about the HSA's rates.

As if the tax benefit wasn't enough...there is a huge savings in monthly insurance premiums when comparing HSA's with other standard plans.  This can have a big impact for both the individual and the small group.  We cover in-depth, the advantage of high-deductible plans here.  Essentially, you are using your premium savings to cover the possible smaller bills that other more expensive plans would cover.

Find the plan you are looking for and click to the right.  A new window will appear.

HSA Compatible Plan Instant Quote

  Individual and Family
Blue Cross High Deductible EPO/PPO
Blue Shield Spectrum Savings PPO

Individual Family Health Savings Account Quote

Small Business (2-50 employees)
Blue Cross High Deductible EPO/PPO 
Blue Shield Spectrum Savings PPO
Small Business Health Savings Account Quote

Now let's take a look at the choice of doctors:

 4. Health Saving Accounts - Doctor Networks

Now, let's look at the networks...

Network refers to the doctors, hospitals, and medical facilities that participate in an insurance plan.

Blue Cross of California uses an EPO (Exclusive Provider Organization) or PPO (Preferred Provider Organization) network.  This means there are no benefits outside the list (except in emergency situations).  This list of course exactly matches Blue Cross' PPO list...approximately 46,000+ doctors and 400+ hospitals in California.  A complete online directory can be found here.

Blue Shield's HSA compatible plan uses a PPO.

To get a really good explanation of the differences between HMO, PPO and EPO...go

As mentioned before, an important aspect of the HSA is that you can write off qualified medical and dental expenses as well as long term care premium expenses.  Let's take a look at what qualifies here.

5.  Health Saving Accounts - Eligible Expenses

213(d) Eligible Expenses 

For more information, please refer to
IRS publication 502. You can order a copy of publication 502 by calling 1-800-TAX-FORM (1-800-829-3676).

Medical services fees (from doctors, dentists, surgeons, quotes, and other medical practitioners)

Prescription medicines (those requiring a prescription by a doctor for their use by an individual) and insulin Oxygen equipment and oxygen Hospital services fees (lab work, therapy, nursing services, surgery, etc.)

Special items (artificial limbs, false teeth, eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, etc.)

Expenses of an organ donor

Meals and lodging provided by a hospital during medical treatment

Wages for nursing services
(see Publication 502)

Social Security tax for worker-provided medical
care (see Publication 926) 

Psychiatric care at a specially equipped medical center (includes meals and lodging)

Capital expenses for equipment or improvements to your home needed for medical care (see Publication 502)

Special school or home for mentally or physically disabled persons (see Publication 502)

Transportation for needed medical care (see Publication 502)

Treatment at a drug or alcohol center (includes meals and lodging provided by the center)

Legal operation to prevent having children

Cost and care of guide dogs or other animals aiding the blind, deaf, and disabled

Cost of lead-based paint removal (see Publication 502)

NOTE: Health insurance premium may be allowed by 213(d), but the HSA law limits these to specific circumstances (see below). 

The IRS link here is a great resource for further information into the tax status and workings of the qualified HSA account.  We are also compiling a list of helpful resources
here at our FAQ's sheet.

6.  Health Saving Accounts - Resources

Here are some links for further understanding of HSA's...We will be adding quality information as we find it.  

United States Department of Treasury
Department of Treasury Logo
Internal Revenue Service
IRS Logo
Council for Affordable Health Insurance
HSA Insider
HSA Road Rules
Road Rules (.pdf)
Americans for Free Choice in Medicine
The Galen Institute
National Association for Alternative Benefits Consultants
Health Savings Account Official Web Portal

7.  Health Saving Accounts - Health Savings Accounts Administrators

Here is a list of stand-alone Health Savings Account administrators.  Make sure to contact them directly to verify fees and availability.

Name,  Address,  Phone Set-up fees Admin. fees Accountholder Options
Wells Fargo

HSA Bank


$1.75 month if under $3000 balance


debit card and checks;  FDIC insured; money market interest or option for brokerage account
First HSA
$25 $5.00/mo. access to investment services after $1,000 in account;  2-5% interest on money in account per schedule;  FDIC insured

Introduction       How it Works       Instant Quote       Networks       Eligible Expenses       FAQ's      Administrators