Understanding California Health Savings Account options

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 HSA (Health Savings Account) expanded the previous MSA (Medical Savings Accounts) to allow among others, the following improvements:

100% funding of the deductible up to set limits
Permanent program...no 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 Savings Account 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 are 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, start here first, otherwise let's look at the exciting half...the medical 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 is 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 Shield 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


Small Business (2-50 employees)

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.

Both Blue Shield of California and Blue Cross of California use PPO networks.  A complete online directory can be found here.

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 

The following is a summary of medical expenses that are eligible for HSA reimbursement. 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). 


Artificial Limbs
Artificial Teeth
Birth Control
Contact Lenses
Dental Treatment
Diagnostic Fees
Guide Dog
Hearing Aids
Hospital Service
Laboratory Fees
Nursing Home 
Nursing Services
Operating Room
Prenatal Care
Psychiatric Care

213(d) Ineligible Expenses 

The following is a summary of medical expenses that are not eligible for HSA reimbursement. 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).

Surgery for purely cosmetic reasons.

Expenses for your general health (even if following your doctor’s advice) such as:

- Health club dues 
- Household help (even if recommended by a doctor)
- Social activities, such as dancing or swimming lessons
- Stop smoking programs
- Trip for general health improvement
- Weight loss program
Diaper service
Funeral, burial, or cremation expense
Illegal operation or treatment 
Life insurance or income protection policies, or policies providing payment for loss of life, limb, sight, etc.

Maternity Clothes

Medical insurance included in a care insurance policy

Medicine you buy without a prescription

Nursing care for a healthy baby

Toothpaste, toiletries, cosmetics, etc.

Most health insurance premiums

NOTE: HSA funds may be used to pay health insurance premiums for:

1) Qualified long-term care insurance; or

2) Health insurance while you:

(a) are receiving unemployment compensation;

(b) are entitled to federal or state health insurance
continuation, such as COBRA.


Advanced payment for services rendered next year
Baby-Sitting -- ChildCare
Bottled Water
Cosmetic Surgery
Dancing Lessons
Diaper Service 

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 Logohttp://www.ustreas.gov/offices/public-affairs/hsa
Internal Revenue Service
IRS Logohttp://www.irs.gov
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
First HSA
$18 $1.75 month if under $3000 balance debit card and checks;  FDIC insured; money market interest or option for brokerage account

$25 $5.00/mo. access to investment services after $1,000 in account;  2-5% interest on money in account per schedule;  FDIC insured
American Health Resources *

PO Box 8847
Metaire, LA 70011-8847


$15 $4.50/mo. Can deposit in either "money market-type funds or securities".

Can "self-direct" investments. AHR

Can pay provider or reimburse accountholders.

Health Savings Administrators, LLC
204 N. Hamilton St. Suite 4
Richmond, VA 23221
Phone :888-354-0697
Fax: 804-355-5375
Admin. fee - Single - $ 35
                 - Family - $ 60

Fidelity no-load mutual funds including money market
   - Any insurance company
   - No transaction fees

American Health Value

PO Box 8063
Boise, ID 83707-2063

$25 indiv. or
$30 joint
$3/$4.50/or $8.50

per mo. depending on plan chosen

Visa Debit Card and checks. Can select money market or Delaware Funds (min. balance = $1250)

RX card, nurse line, & Dr/Hosp.

Discount plans available.

Benefit Administrators

1009 Oak Hill Rd, 3rd Floor
Lafayette, CA 94549


Bank or $35/Wells Fargo Bank

$3/mo. (Gateway) or $2/mo. (Wells Fargo) Will process reimbursement requests or provide checks [disbursement fees = $5 (Gateway) or $10 (Wells Fargo)].

Custodial Fee (Wells Fargo)

$39/yr. Min. account balance for investments = $2500 (avail. thru Wells Fargo only)]

CMS Administrators

576 B Street
Santa Rosa, CA 95401


$10 per employee Varies by size of


Works only with non-tax-qualified

Market. Reimburses insured for medical expenses from the "MESA, Medical Expense Savings Account"

Lake Forest Funds

270 E. Westminster Rd, 3rd Flr Lake Forest, IL 60045-1899

No set-up fee No Admin. Fee

Ann. Custodial fee $15

Acct. liquidation fee = $15

Minimum account balance = $1000

PO Box 17190
Indianapolis, IN 46217

$50 $3/mo.

Renewal fee for groups of 2-9 =


Investments in mutual funds from first dollar (Annual fee of $24 for access to focus fund group.)
Medical Savings Accounts/Utah

1341 S. State St, 310A
Salt Lake City, UT 84115


No set-up fee $5/mo. Money market bank accounts only
Medical Savings of America

960 Broadway St, 505
Boise, ID 83706


$12 $2/mo. Visa debit card or checks.

1501 WestCliff Drive, 310
Newport Beach, CA 92660


Medical Retirement

Accounts (MRA)

$500 set-up fee

Medical Retirement

Account (MRA) Only


Refers all MSA account requests to American Health Value, MSAver Resources or Merrill Lynch. Pays %Of fees on the MRA to brokers.
MSAver Resources, Inc.

7400 W. 110th St., 520
Overland Park, KS 66210-2346


Fees presently being restructured.

Please call

Fees presently being restructured.

Please call

Options being expanded. Please call.
Prime Health

4640 W. 77th St., 214
Edina, MN 55435


$25 per person


$5/mo. Per person

$50 or 10%

termination fee.

Money market only. Will reimburse either provider or accountholder.
SSgA Funds

Po Box 8317
Boston, MA 02266-8317


No set-up fee No admin. Fees.

Annual maintenance fee= $75. Check writing privileges @ $10/checkbook

15 different funds available with a minimum investment of $250 per fund. Automatic investments and telephone exchanges allowed.
State Bank of Howards Grove

211 N. Wisconsin Drive
Howards Grove, WI 53083


$12 for bank account none for mutual fund account $1/mo. (bank acct) $1.75/mo. (brokerage account)


May choose bank money market acct. or from 3000 mutual funds. (Trading fees start at $14.95 per trade) Minimum initial deposit of $100
HSA Administrators

3500 Grove Ave.
Richmond, VA


$15 $30 indiv./$60 fam./ year

1.1% x Balance Cust. Fee/Yr.

May choose from 6 no-load mutual funds or money market


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

Home   |   Contact   |   About-Us   |  Short-Term    |   HSA   |   Health 101   |   Doctor Search   |   Applications   |   Resources