For those with verifiable self-employment income, the option to combine a health sharing plan with HSA is now available.
If you are running your own business or working as an independent contractor, managing the high costs of healthcare can be a challenge.
You can pair a cost-effective health sharing plan with an HSA, giving you access to affordable healthcare while reducing your taxable income. It’s a great solution for cutting medical costs and maximizing your tax savings at the same time.
Here’s how—simply purchase a smaller policy called HSA MEC.
How HSA MEC Works
The term “MEC” stands for Minimum Essential Coverage.
These low-cost mini health plans offer basic preventive care and access to telemedicine service for zero out-of-pocket cost. They are affordable, hassle-free, and designed to meet the minimum criteria to qualify as a high-deductible health plan, or HDHP under the Affordable Care Act.
When you’re covered under a qualified HDHP, and meet certain other criteria, you may make tax-free contributions to a health savings account.
We simply layer the HSA MEC policy on top of your existing health sharing plan. HSA MEC offers preventive care and telemedicine services, enhancing your healthcare options.
With this approach, you get the best of both worlds:
- Health Sharing Plan: Covers major medical incidents, like emergencies or catastrophic medical bills, providing you with peace of mind for the big stuff.
- HSA: Covers out-of-pocket costs like prescriptions, transportation, and qualified expenses not covered by health sharing plans—tax-free!
The tax savings alone can reduce your out-of-pocket medical expenses by 20% to 40%, depending on your federal and Colorado state tax brackets.
Here’s why it’s a smart move:
- The tax benefits from your HSA contributions can quickly outweigh the modest cost of the HSA MEC policy, especially in the first year.
- If you can contribute the maximum (or close to it) to your HSA, the decision is typically an easy one — the savings and healthcare coverage make it worthwhile.
Note: HSA MEC is not meant to be a stand-alone plan. Only covers minimum required expenses for high-deductible plans; excludes major medical, ER visits, specialist care, surgeries, and more.
This is why you need to have either a health sharing plan or traditional insurance in addition to HSA MEC.
Learn More: The 2025 Colorado Health Sharing Plan Comparison Guide
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How Much Can I Contribute to an HSA?
As of 2024, the maximum HSA contribution is $4,150 for an individual plan, and up to $8,300 for a family.
Those aged 50 or older can contribute an additional $1,000 in “catch-up” contributions.
There are no income limits or phaseouts. You can contribute to an HSA no matter how much money you make.
How HSAs Benefit You in Retirement
Anything in your HSA that you don’t need for medical expenses compounds tax-deferred for as long as the money remains in your HSA.
When you turn 65, you can still use that money to pay qualified medical expenses, and even qualified long term care insurance premiums in retirement.
The HSA still benefits you as the 20% penalty for non-qualified withdrawals is waived. You can then use your HSA money as a supplemental retirement fund. With no penalties, you only need to pay the income tax on the money you withdraw, just as you would with a traditional IRA or 401(k).
Here’s what to expect after you purchase an HSA MEC:
- Account setup: Optum Bank, a leading HSA custodian, will automatically open your HSA account.
- Start contributions: You can contact Optum Bank to begin making tax-free contributions to your HSA.
- Receive tax forms: Optum Bank will provide the necessary tax forms to deduct your contributions from your taxable income when you file your return.
- Above-the-line deductions: HSA contributions qualify as “above-the-line” deductions, meaning you can take them even if you don’t itemize.
If you’re already in a health sharing plan, you can easily add the HSA MEC to your plan. If you want to explore a plan that saves up to 50% compared to traditional health insurance, this option is available.
To get started or to receive a free consultation, contact a ColoHealth Personal Benefits Manager.
If it’s the right fit, we can even sign you up over the phone or enroll on your own.
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Common Mistakes to Avoid When Combining HSA with a Health Sharing Plan
When combining a health sharing plan with an HSA MEC policy, it’s important to avoid common pitfalls.
This ensures you maximize savings and maintain HSA eligibility. Here are some common mistakes to avoid:
- Not maintaining a qualified high-deductible health plan (HDHP): To contribute to an HSA, you must be enrolled in a qualified HDHP. Without an HDHP, you can’t contribute to an HSA, and ineligible contributions may trigger tax penalties.
- Assuming all medical expenses are covered: Health sharing plans often don’t cover routine or preventive care and they may have limitations on what is considered a shareable expense. Understand what your health sharing plan covers and how your HSA can help with out-of-pocket expenses.
- Failing to contribute the maximum to your HSA: Maximizing HSA contributions up to the annual limit can yield significant tax savings if financially feasible. Many people miss out on maximizing these benefits simply by not contributing enough to their HSA each year.
- Not keeping track of qualified medical expenses: If you don’t keep proper records of your qualified medical expenses, you may miss out on using HSA funds tax-free. Maintain receipts and documentation of all eligible expenses to ensure you can make the most of your HSA.
- Misunderstanding HSA withdrawal rules: Non-qualified HSA withdrawals before 65 incur a 20% penalty plus regular income taxes. After 65, no penalty applies, but taxes still apply to non-qualified withdrawals; understanding rules ensures wise HSA use.
By avoiding common mistakes, you can maximize the benefits of your HSA and health-sharing plan. This helps prevent costly errors that reduce your savings.
Note for W-2 Employees
If neither you nor your spouse is self-employed or running a business, combining a health sharing plan with an HSA isn’t an option for you right now.
However, if you’re covered by a qualified high-deductible health plan (HDHP) through your employer, you can still contribute to an HSA and enjoy the tax benefits.
Alternatively, if you’re considering starting a small business or side hustle, once you have a 1099 (a business license), or verifiable self-employment income, you’ll be eligible to purchase an HSA MEC policy, open an HSA, and start making tax-free contributions.
If you find yourself in this situation and want to explore your options, we’re here to help.
FAQs
What does the HSA MEC policy cover?
HSA MEC policies provide coverage for preventive care, including checkups and screenings, as well as telemedicine services at no out-of-pocket cost. However, it’s important to note that they do not cover major medical expenses like ER visits, surgeries, or specialist care.
Can I use my HSA to pay for expenses not covered by my health sharing plan?
Yes, your HSA can be used for a wide range of out-of-pocket expenses not shared by your health sharing plan, such as prescription drugs, medical transportation, and qualified medical expenses, all on a tax-free basis.
How much can I contribute to my HSA?
As of 2024, the maximum HSA contribution is $4,150 for individuals and $8,300 for families. If you’re 50 or older, you can contribute an additional $1,000 as a “catch-up” contribution.
Is the HSA MEC policy a stand-alone plan?
No, the HSA MEC policy is not a stand-alone plan. It only covers the minimum essential services required to qualify as a high-deductible health plan (HDHP). You’ll need a health sharing plan or another insurance policy to cover major medical expenses.
Can I still contribute to an HSA if I’m a W-2 employee?
If you’re a W-2 employee and covered by a qualified HDHP through your employer, you can still contribute to an HSA. However, if you’re not self-employed, combining a health sharing plan with an HSA MEC isn’t an option for you.
Christine Corsini is a health insurance and medical cost sharing expert, and a Personal Benefits Manager at ColoHealth. Her goal is to help people embrace life’s amazing possibilities by staying healthy, saving money, and making the best decisions when it comes to healthcare.
