Question of the Week
High deductible plans that don’t qualify for an HSA
Happy Friday all! This week I have a follow up to last week’s post about HSAs: the only savings vehicles that offer triple tax savings and that could offset some high medical costs. One of my clients tells me that even though he has a high deductible, he still doesn’t qualify for an HSA. How can that be? Let’s get into it.
How do I qualify again?
I mentioned last week there are four criteria to qualify for an HSA. The first is that you have to be covered under a High Deductible Health Plan (HDHP). While that definition seems self-explanatory (a plan with a high deductible, right?), the IRS adds a couple more caveats:
- Having a deductible of at least $1,400 for an individual or $2,800 for a family.
- The total out-of-pocket expense (including deductibles, copayments and coinsurance) can’t be more than $6,900 for an individual for an individual or $13,800 for a family.
- Except for preventative care, the plan cannot provide benefits for any year until the deductible for that year is met (this was expanded in 2019). So, those plans that offer three free doctor visits without co-pay aren’t covered, no matter how high the deductible is.
As a result, it’s not enough to have a high deductible (and remember, a deductible is what you must pay before insurance kicks in). You also need to meet the other two criteria. My client found this out the hard way. His individual plan had a deductible of $2,600 and an out-of-pocket max of $7,600. As such, his plan is not an HDHP for HSA purposes.
Yes, even though my client had a deductible higher than the HDHP limit, he didn’t qualify for an HSA because his out-of-pocket maximum is TOO HIGH. This seems unfair. Not only does he have to pay more, but he doesn’t get the additional help an HSA provides. But although that seems completely backwards and counter intuitive to me, it’s the way the law was written. It’s like telling a person who is overweight that he can’t go to a gym until he loses several pounds.
This is a common issue for people who get their health care on the exchange. Some 81% of plans with a high-deductible still don’t qualify as a HDHP because of the other two criteria.
So, what can I do?
You can save hundreds and even thousands of dollars by having an HSA, so it’s important to make sure you qualify. What can you do? You need to be extra diligent when you select your plan.
According to HealthCare.gov, HSA-eligible HDHP are identified on plan cards by an “HSA-eligible” flag in the upper left-hand corner. You can choose to search for only HSA-eligible plans by using the filter option in the right-hand corner and selecting the “HSA Eligible Plans” filter.
Also, don’t forget that the exchange isn’t the only place you can get insurance if you’re self-employed. Many unions and professional organizations offer insurance. You can also go directly to private insurances to check out their policies. There are also Health Cost Sharing Plans like Christina Healthcare Ministries (CHM), Liberty Healthshare, Medi-Share and Samaritan Ministries that offer affordable, no-frills healthcare.
Quote of the Week
“If you don’t like something, change it. If you can’t change it, change your attitude.” – Maya Angelou
Task of the Week
Find out if your plan is HSA eligible! You can verify with your insurer whether you qualify. For health care exchange plans, check for the “HSA eligible” tag. If you find out that you don’t qualify this year, set a calendar invite for November 1st this year and make it a priority to search for a qualifying plan.