Not sure if your health insurance qualifies you for a health savings account or HSA? Laura answers a listener question and covers the facts about what an HSA is and the rules to qualify for one.
What Is a High Deductible Health Plan (HDHP)?
As the name indicates, a high deductible health plan, or HDHP, has a higher annual deductible compared to a traditional health plan. The upside is that they also come with lower monthly premiums. The insurance costs less because it doesn’t start paying your medical bills until you’ve met a higher annual deductible.
HDHPs cover certain types of preventive care at no charge, such as an annual physical, prenatal and well-child care, immunizations, and screenings, regardless of the deductible. That means those basic medical costs are automatically covered for you, even if you haven’t met your annual deductible. So having a higher deductible doesn’t necessarily mean that you have to skip important checkups if your budget is tight.
The annual premium savings, tax benefits, and potential employer contributions can make a high deductible health plan paired with an HSA very economical. If you’re relatively healthy and don’t have many medical expenses, you’ll probably come out ahead.
Remember that the purpose of having health insurance isn’t to cover every expense associated with a head cold—it’s to protect your finances against a devastating, expensive major medical condition.
Before opting for a high deductible health plan, be sure you can afford the deductible. If you fund an HSA on a consistent basis or have other emergency savings to tap, you probably can handle it.
But an HDHP isn’t for everyone. If you’re managing a chronic illness, take expensive prescription drugs, or have children, you could end up paying more. So, you need to weigh having a potentially higher annual deductible against having guaranteed higher monthly premiums.
How to Know If Your Health Plan Qualifies for an HSA
Now that you understand more about HDHPs, let’s get back to Lydia’s question about how to know if her health plan is HSA-qualified. It’s a little tricky because not all health plans with high deductibles are eligible.
For a health plan to be HSA-qualified, it must meet the following three criteria for 2018:
- Minimum deductible – must be no less than $1,350 for individual plans and $2,700 for families.
- Maximum out-of-pocket – can’t exceed $6,650 for individuals and $13,300 for families.
- Benefit exclusions – restrict the services you can receive to preventive care only, before meeting the annual deductible. For a health plan to conform to the Affordable Care Act, it must cover a set of preventive services at no cost to you. For example, if a health plan pays for emergency services, doctor visits, or prescription drugs with a co-pay before you meet the deductible, it’s not HSA-qualified. Again, preventive care, such as getting a physical, cancer screenings, or immunizations, can be covered before you meet a deductible with an HSA-qualified plan.
Since Lydia mentioned that her husband is also covered, let’s compare her plan to the HDHP requirements for a family plan. Her insurance has a $3,500 deductible, which does meet the first criteria of being more than $2,700. Her plan also meets the second criteria, with a $7,350 out-of-pocket maximum compared to the required $13,300 limit.
But we don’t know if Lydia’s plan meets the third criteria for benefit exclusions. She would have to read her policy for the coverage details. Also look for a reference to Internal Revenue Code Section 223, which is the law that defines the HDHP rules.
When in doubt, contact your insurance company. Since being a qualified HDHP is a big selling point for insurers, most aren’t shy about labeling eligible plans as HSA-qualified.
But Lydia mentioned in her email to me that she did contact her insurer and still didn’t get a clear answer. My recommendation is to call the insurer again and ask to speak to a policy specialist or a manager.
If an insurer can’t confirm that your plan is HSA-eligible, I’d assume that it isn’t. When open enrollment comes up for Lydia’s company, they should shop quotes for a bonified, HSA-qualified plan.
To quickly review the health savings account rules and the best places to get an HSA, download the free HSA Cheat Sheet. This one-page reference explains the requirements and rules you need to know.