Health insurance costs are at an all time high, and HSA plans should be at the top of your shopping list. Exchange plans feature lower premiums if you qualify for a federal subsidy. But for upper-income earners, the Marketplace plans are often more expensive than older grandfathered plans and last year's policies. So for many persons, a high deductible plan (HDHP) has become a viable solution for large and small companies that offer medical benefits to their employees. But the self-employed or anyone paying their own benefits can also benefit from favorable tax laws that impact HSAs.
With this type of policy, premiums are much lower than a conventional on or off-Exchange plan, although the subscriber must pay medical costs out of their own pocket up to a certain dollar amount (called a deductible) before the health insurance benefits will apply. However, until that point, a negotiated price reduction will reduce out-of-pocket expenses. And often, the negotiated savings is huge, easily saving hundreds or thousands of dollars. The cost of prescription drugs also is discounted.
For example, an X-ray with a cost of $150, may reduce to between $15 and $50, thanks to the insurance company's contract with the provider. The cost of a simple lab test or blood test may be reduced by as much as 90%. More expensive procedures, such as an MRI or CAT scan, will reduce in price by hundreds of dollars (and possibly thousands), depending on the scope of the test. Specialist visits and out-patient surgeries typically will receive large negotiated price reductions. It's not uncommon to see a major invasive surgery (and accompanying expenses) reduced from $50,000 to $30,000. Qualified preventative expenses, such as routine annual physicals, OBGYN exams, and mammograms, are always covered at 100%. Many additional procedures, including a colonoscopy, are also covered with no out-of-pocket expenses.
Impact Of Obamacare
As we will also discuss later, the ACA legislation (Obamacare) allows both individual and small business HSA plans to be compliant. Although they are not offered by as many companies and deductible choices have reduced, the overall concept has not changed and all tax reductions have remained in place. If you and/or most family members have no serious chronic medical conditions, there's a good chance an HSA will save you money, and reduce your tax liability when compared to other Marketplace options. In a worst case scenario, out-of-pocket expenses are capped, although a new deductible must be met each calendar year. Therefore, if an approved elective surgery is planned, it's best to have the operation performed in the beginning of the year, so a yearly deductible can be met.
If you are currently being treated for an illness that requires frequent testing, treatment and medication (and possibly a pending surgical procedure), a more cost-effective Exchange plan would be a better choice. A "Silver" Metal policy is ideal if your income is low enough to qualify for a substantial financial subsidy. Your deductible and copays could substantially reduce with "cost-sharing" benefits. However, your household income must meet specific Federal Poverty Level (FPL) guidelines.
Most older HSAs were previously considered "grandfathered" and were allowed to remain active, despite not meeting the new guidelines. However, instead of age 26, children can only stay on these types of plans until they are 24. It is important to note that if you change the deductible or significantly alter the policy, you could jeopardize the grandfathered status. This could result in the forced placing of a new policy that is thousands of dollars more expensive, with possible higher out-of-pocket costs.
If you miss Open Enrollment (and millions of person do!), under certain circumstances, you can still purchase a subsidized (or unsubsidized) plan. However, you would have to meet one of the many "life events" that qualify for a special enrollment. For example, if your child turns 26 (while on your plan) or you no longer have benefits due to losing your job, these special circumstances would apply.
Other exceptions include birth or adoption of a child, moving to or from a different service area, and a substantial change in income that impacts cost-sharing in a specific policy. You can contact us for the complete list. Proof of the event may be required, and your projected income for the remainder of the year will be needed to determine eligibility and amount of subsidy.
All State Marketplaces offer several HSA options. Deductibles can be as high as $6,550 per person and $13,100 per household. This allows premiums to be quite low compared to other types of available policies. Blue Cross (Blue Shield), Humana, Kaiser, Cigna, and Aetna are five of the largest providers of this type of plan, although most contracts are offered as Group options through an employer.
How Does A High Deductible Plan Work?
High deductible plans (HDHPs) can vary in the amount of the deductible, but the Internal Revenue Service has set a minimum for 2019 of $1,350 for an individual and $2,700 for family coverage. Deductibles can be much higher (see above), depending on the plan that you choose. The maximum out-of-pocket expenses for HDHP plans in 2019 (premiums not included) is $6,750 for individuals and $13,500 for families. These plans are the cheapest, and typically found in the Bronze tier. Silver-tier HSAs are offered, although rates are higher, and deductibles are lower.
While the thought of facing thousands of dollars in health insurance costs for anyone may seem daunting, most people enrolled in a high deductible plan utilize a health savings account (HSA). Almost all large insurers offer these types of plans and they have grown in popularity since they were originally introduced. They remain popular today because you have time to build up your fund in years that you don't meet a deductible. The maximum annual contributions are $3,500 for a single plan, and $7,0000 for a family plan. Of course, you can choose to contribute a lower amount, or simply make no contributions during the year. Once eligible for Medicare, additional contributions can not be made, although prior accumulated contributions can be used for qualified expenses.
Your Optional Side Account
You can also change HDHP plans without changing your HSA side account. For example, if your main policy was with Blue Cross for the entire year, and you decided to change to Aetna during Open Enrollment (effective Jan st the following year), you would not need to change the bank account that you utilize for funding and dispersing qualified expenses. And if you maintained a banking relationship with them through other accounts, you are probably receiving several financial perks. Often, you build "points," which can be exchanged for gift cards and other available rewards.
This "side" account is used to fund your deductible in the event that it is ever needed. The concept of an HSA is that you put money away in a savings account that is designated for use when paying your health insurance deductible. Once the deductible has been met, the health insurance plan usually will provide more comprehensive benefits, typically at 100%, assuming there is no coinsurance or copays to meet. If you need medical coverage for children, this type of contract can still be used since dependents can be included. NOTE: It is not unusual to have different coinsurance levels (see below).
Sometimes there may be a small copay to meet on non-preventive office visits or non-generic prescriptions. The coinsurance is the percentage of a claim that you pay after the deductible is met. It may be 10% or 20% (sometimes as much as 50%), and will have an out of pocket cap so that you are not paying an absorbent amount on a major claim. Naturally, a higher coinsurance will save you money since you are taking more risk. However, if you have a major claim, and easily meet the deductible, the coinsurance level does not impact your total out-of-pocket expenses.
Common deductible/coinsurance options are $6,400/0%, $6,400/30%, $5,250/0%, $5,250/30%, $5,000/0%, $5,000/20%, $4,000/50% and $4,000/20%. Of course, there are additional combinations offered by companies, depending on your residing state. 50% is typically the highest coinsurance offered. 20% is a benchmark and we don't recommend going above 30%.
Why Would I Consider This Policy?
The main reason to move to a high deductible plan is that you will save a substantial amount of money on health insurance premiums. For example, you may have a choice between a conventional Marketplace medical plan that could cost twice as much as a high deductible plan. While you are saving thousands of dollars in premium, you may decide to contribute money into the side account that offers the flexibility of ownership and also the tax advantages. There are two ways to accomplish this.
Health Savings Accounts
An HSA contains contributions made by you on a tax-free basis, to use toward medical, dental or vision expenses. Money that sits unused in this type of account builds interest over time. However, interest rates are currently very low, so the investment incentive is not that great. But the safety of a fixed interest rate should never be under-appreciated. The highest current interest rate available is slightly under 1%. Within the next few years, we expect the rate to creep above 1%, as long-term interest rates and bod yields increase.
Also available is a flexible savings account (FSA). Money deposited into this type of contract is contributed on a "use it or lose it" basis, unlike an HSA where you can leave deposits alone without forfeiting them at the end of the year. This may explain the phenomenon of why consumers frantically buy glasses that they may not need during the last few weeks of December! Or perhaps they visit the dreaded dentist twice in the same month.
Will I Be Able To Buy These Plans In 2017 and 2018?
Each State Exchange is unique, with multiple carrier and plan choices, although there are typically available options that qualify as HDHP contracts. While states like Ohio, Wisconsin, and Virginia have many companies offering products, smaller states may have limited options. For example, states with only one available carrier are Alabama, Alaska, Oklahoma, and Wyoming, while nine other states only feature two carriers.
California, for example, ("Covered California" is the name of the State Marketplace) previously, had no plans to offer HSA-compatible plans. Although this decision was very unpopular with many consumers that prefer to manage their own healthcare choices, there are now several choices. A few popular options are Blue Shield of California Bronze 60 HSA and the UC Health Savings Plan.
Open Enrollment takes place every year and we'll help you find the the best choice. Of course, if your state does not have a specific option that makes the most financial sense, we'll research and find the best alternative. It is expected, however, that more options may become available in many states in 2019 or 2020. It's also possible that an additional Metal plan will be created (Copper?) that is cheaper than a Bronze plan.
Is It Right For You?
For many people, the idea of having to face paying thousands of dollars in medical bills out of their own pocket may seem like a risky endeavor. However, if automatic contributions are made to the Health Savings Account through an employer’s payroll service, it becomes much easier to accumulate funds more rapidly. And you can accomplish the same type of saving when funding your own "side account."
Perhaps, you will get to the point where you have maximized the amount of money that can be deposited. That would signify that your household is very healthy and has used very little of the available funds. In those types of situations, you may want to temporarily discontinue your extra deposits and perhaps place the money in a Roth IRA or increase your 401K funding. You can also purchase long-term healthcare coverage that counts as "qualified" spending.
The HDHP with a health savings account generally benefits healthy people more than those who continually experience high medical costs each year. The money saved on insurance premiums and deposited into your account transfers to you if it is not used for medical purposes. For those who routinely have significant medical costs or a catastrophic medical loss throughout the year, the savings may be harder to realize. Obviously, if this occurs every year, a more comprehensive copay plan is a better solution for your situation.
It is important to make a detailed comparison between a traditional health care plan and a high deductible policy. While there may be a net savings by moving to the HDHP-HSA combination, there may also be some trade-offs such as higher co-pays, or co-insurance requirements that wind up costing more. We show you the best available HSA plans for individuals so you can save the most money.