As you may know, in order to contribute to a Heath Savings Account (HSA) you need to be in a High Deductible Health Plan (HDHP) and you can’t have other health coverage. Many people don’t realize that just having a high deductible isn’t by itself sufficient to make a health insurance plan a High Deductible Health Plan. It’s possible even though your health insurance has a high deductible you are still not eligible to contribute to an HSA.
Therefore if your insurance from work has a high deductible but the company is not offering an HSA, it’s likely that the plan doesn’t qualify as an HDHP. If you’d like to contribute to an HSA on your own, you should ask specifically whether your insurance qualifies as an HDHP under the IRS definition. If a plan from the ACA marketplace doesn’t say HSA in its name, chances are it isn’t HSA-eligible.
Besides a high deductible, in order to qualify as an HDHP, a health insurance plan must also not offer any benefit beyond preventive care before you meet the annual deductible. An otherwise high deductible plan fails the HSA qualification when it tries to be nice and it gives you some benefits before you meet the deductible.
Prescription drugs are expensive. A small tube of generic cream can cost over $200 (see previous post High Deductible Health Plan and Expensive Prescriptions). If you can get non-preventive prescription drugs covered through your insurance by paying only a co-pay, without having to meet the annual deductible first, your insurance plan is disqualified from being HSA-eligible.
Besides preventive care such as physical checkup or immunization, if the plan offers a limited number of office visits with only a co-pay before you meet the annual deductible, the plan doesn’t qualify as an HDHP no matter how high the deductible is.
If a plan covers emergency with a co-pay, before you meet the deductible, the plan is again not HSA-eligible.
You see the theme here. The plan isn’t HSA-eligible when it gives you more. If you have a plan like this, although it’s a bummer you can’t contribute to an HSA, the consolation is that your plan is a little nicer than an HSA-eligible plan.
Individual Deductible In a Family Plan
If a family plan offers both an individual deductible and a family deductible, in other words the plan will pay for one person when that person meets the individual deductible before the entire family meets the family deductible, the individual deductible must be higher than the minimum deductible for HDHP family coverage.
Example 1: A family plan has an individual deductible of $2,000 and a family deductible of $4,000 for 2019. Because this family plan will start paying on non-preventive care before the family spends the minimum deductible for HDHP family coverage, this plan isn’t HSA-eligible.
Example 2: A family plan has an individual deductible of $4,000 and a family deductible of $8,000 for 2019. Because the individual deductible is higher than the minimum deductible for HDHP family coverage, this family plan can be HSA-eligible if it also meets other qualifying criteria.
Out-of-Pocket Maximum Too High
Besides the minimum deductible, the out-of-pocket maximum of an HSA-eligible plan also can’t be higher than an inflation-adjusted number published by the IRS every year. If your plan has a high deductible and a high out-of-pocket maximum, higher than the IRS published number, it’s also not HSA-eligible.
If you want to contribute to an HSA, your insurance must make you take the first hits in non-preventive care. If you are healthy and you don’t consume much health care, it almost feels like you have no insurance. Every time you go to the doctor or you get a prescription, you are paying 100% out of your own pocket. You get the benefit of in-network negotiated billing rates. That’s about it.
You just have to remember insurance is supposed to be for unpredictable things that cost a lot but don’t happen often. You don’t use auto insurance when you get an oil change or when you have your brakes replaced. You don’t use homeowner’s insurance when you replace a worn-out garage door. You just have to get used to your health insurance working the same way. I’ve been on HDHP for a few years. I’m still getting used to it. It’s not easy.