As health insurance costs continue to rise, many California employers are looking for creative ways to offer meaningful employee health plans while keeping budgets in check. One increasingly popular option is the HSA-compatible health plan, also known as a High-Deductible Health Plan (HDHP) paired with a Health Savings Account (HSA).
In this blog, we’ll explore the pros and cons of offering an HSA-compatible plan, how it impacts your group benefits strategy, and what employers should consider when making this decision. We’ll also touch on Medicare enrollment timing and how experienced insurance brokers can help tailor your benefits strategy to support both compliance and cost control.
What Is an HSA-Compatible Plan?
An HSA-compatible plan is a high-deductible health plan (HDHP) that meets IRS criteria and allows enrollees to open and contribute to a Health Savings Account. The HSA offers tax-advantaged savings that can be used for qualified medical expenses.
To qualify:
- The plan must have a minimum annual deductible and maximum out-of-pocket limits defined by the IRS.
- It cannot provide coverage for non-preventive services before the deductible is met (except for certain chronic condition preventive treatments per IRS Notice 2019-45).
2024 HSA Plan Requirements (per IRS)
| Coverage Type | Minimum Deductible | Maximum Out-of-Pocket | HSA Contribution Limit |
| Self-only Coverage | $1,600 | $8,050 | $4,150 |
| Family Coverage | $3,200 | $16,100 | $8,300 |
| Age 55+ Catch-up (each) | — | — | +$1,000 |
For updates and current limits, visit IRS.gov – Publication 969.
The Pros of Offering an HSA-Compatible Plan
Cost Savings for Employers
Because HDHPs generally have lower monthly premiums than traditional PPO or HMO plans, employers often see immediate savings. These savings can be reinvested into HSA contributions or wellness programs to enhance your group benefits.
Tax Advantages for Employees
Contributions to an HSA are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified expenses. Employees can also roll over unused funds year to year—making HSAs a great long-term savings tool.
Promotes Consumer-Driven Healthcare
HSA-compatible plans encourage employees to shop wisely for care, ask questions, and understand the true costs of services. This often leads to better engagement with their employee health plans.
Flexible Benefit Customization
Employers can decide whether to contribute to the employee’s HSA, match funds, or offer tiered incentives based on participation in wellness activities.
The Cons of Offering an HSA-Compatible Plan
Higher Deductibles Can Be a Shock
Some employees may not be financially prepared for the higher out-of-pocket costs before coverage kicks in. This can cause stress or delay necessary care if not clearly communicated.
Not Ideal for All Employee Demographics
Older employees, those with chronic conditions, or families with frequent doctor visits may not find HDHPs beneficial. Employers may need to offer a dual-option model (HDHP + PPO) to meet the needs of a diverse team.
Medicare Enrollment Rules
Once an employee enrolls in Medicare Part A or B, they are no longer eligible to contribute to an HSA. Employers must educate employees nearing age 65 on timing Medicare enrollment correctly with their current employee health plan.
Is an HSA-Compatible Plan Right for Your Team?
| Consideration | May Not Fit |
| Team is young and healthy | Older workforce or high-care users |
| You want to reduce monthly premiums | If most employees value rich coverage |
| Employees are financially savvy | If employees avoid saving/spending plans |
| Interested in long-term benefits growth | If employees prefer simple co-pays |
How Insurance Brokers Can Help
Implementing HSA-compatible employee health plans takes more than just choosing a low-cost option. An experienced insurance broker helps you:
- Evaluate your workforce’s medical usage and financial readiness
- Compare HDHPs across multiple carriers
- Structure HSA contributions to boost participation
- Ensure IRS and ACA compliance
- Educate employees on HSA use and Medicare coordination
Brokers act as an extension of your HR team, delivering year-round support and plan optimization that evolves with your workforce’s needs.
Medicare Coordination
For employees nearing age 65, HSA contributions must stop at least six months before Medicare enrollment, as Part A is retroactive for that period. Insurance brokers can:
- Help identify employees approaching Medicare eligibility
- Guide employees on coordinating enrollment without penalty
- Ensure employers maintain group benefits compliance when Medicare kicks in
Offering an HSA-Compatible Plan
Offering an HSA-compatible plan can be a win-win with lower premiums for employers and tax-advantaged savings for employees. But success depends on timing, education, and workforce fit. If your team is health-conscious, financially savvy, and values flexibility, an HDHP with HSA access could be a great addition to your employee health plans.
Just remember: it’s not a one-size-fits-all solution which is why having a trusted partner matters.
At Regency West Insurance, we help California businesses design group benefits strategies that support long-term growth, compliance, and employee well-being. If you’re exploring HSA-compatible options for the first time or fine-tuning your Medicare coordination, we’re here to guide every step.
Schedule a benefits strategy session with Regency West Insurance today.
Frequently Asked Questions
1. How do HSA accounts work?
An HSA (Health Savings Account) is a tax-advantaged savings account designed to help individuals save money for qualified medical expenses. To open and contribute to an HSA, you must be enrolled in an HSA-compatible high-deductible health plan (HDHP).
Here’s how HSAs work:
- Contributions can be made by the employee, employer, or both. They’re tax-deductible or pre-tax via payroll.
- Funds grow tax-free, and there’s no use-it-or-lose-it rule—balances roll over year to year.
- Withdrawals are tax-free when used for qualified expenses like doctor visits, prescriptions, dental care, and more.
HSAs belong to the individual (not the employer), making them portable and a great long-term addition to employee health plans.
2. How do I know if I’m eligible for an HSA plan?
To be eligible to open or contribute to an HSA, the IRS requires that you:
- Be enrolled in a qualified High-Deductible Health Plan (HDHP)
- Not be enrolled in Medicare
- Not be covered by any other non-HDHP insurance (such as a spouse’s PPO or a general-purpose FSA)
- Not be claimed as a dependent on someone else’s tax return
Insurance brokers can help you or your HR team verify which group benefits options are HSA-compatible and ensure eligibility is clearly communicated during open enrollment.
3. Can I use my HSA to pay for health insurance premiums?
In most cases, no—you can’t use HSA funds to pay for traditional health insurance premiums. However, there are exceptions, including:
- COBRA continuation coverage
- Health insurance premiums while receiving unemployment benefits
- Qualified long-term care insurance
- Medicare premiums (except Medigap policies) after age 65
It’s important to educate employees on these rules so they don’t accidentally trigger tax penalties. For more guidance, refer to IRS Publication 969.
4. Can I transfer my IRA into an HSA?
Yes, the IRS allows a one-time transfer from an IRA (Traditional or Roth) into an HSA, called a Qualified HSA Funding Distribution (QHFD). This can help fund the HSA without using out-of-pocket cash.
Key details:
- You must remain HSA-eligible for at least 12 months after the transfer.
- The transfer counts toward your annual contribution limit.
- You can only do it once in your lifetime.
This strategy can be helpful for employees looking to “jumpstart” their HSA savings—especially when first transitioning to an HDHP. Insurance brokers can walk through the steps and ensure timing aligns with employee health plan eligibility rules.
5. Are there any income limits affecting my eligibility?
No, there are no income limits for HSA eligibility. Anyone who meets the other requirements (HDHP enrollment, no Medicare, etc.) can contribute up to the annual IRS limits—regardless of how much they earn.
This makes HSAs especially appealing for high-income earners who want to take advantage of additional tax-advantaged savings. It’s also a perk worth highlighting when building out your group benefits communications strategy.