What's Better For Me? A Traditional Health Plan Or A Plan That Permits Funding A Health Savings Account (HSA)?

What's An HSA?

Health Savings Accounts (HSA’s) can be used in conjunction with High Deductible Health Plans that have out-of-pocket maximums for 2023 at or below $7,500 for individuals or $15,000 for families and that pay 100% of all covered expenses after the out-of-pocket maximum is reached.

Higher individual and family out-of-pocket maximums are permitted for 2023 ACA plans ($9,100/$18,200 individual and family maximum respectively), BUT HSA’s cannot be established for any High Deductible Health Plan that has out-of-pocket maximums that exceed the $7,500/$15,000 threshold for 2023.

Per Affordable Care Act requirements, these plans cover 100% of preventive care benefits without a deductible. Some carriers cover preventive generic drugs for certain conditions (examples are high blood pressure and high cholesterol) as part of this preventative benefit.

If you're buying an Affordable Care Act plan and are concerned about protecting yourself against unexpected hospital or other catastrophic costs, purchasing a bronze level High Deductible Health Plan, funding a health savings account, and coupling this with either a hospital indemnity plan and/or an accident plan may be a more cost- effective way of lowering your overall premium and, in effect, reducing your deductible instead of buying a silver, gold or platinum plan.

People who establish an HSA account can fund that account with a bank or other financial institution and use that account (usually through use of a debit card) to pay for any qualified medical expense (generally any health, dental or vision care expense excluding cosmetic procedures). Annual contribution limits for an HSA are $3,850 for an individual and $7,750 respectively for 2023. In addition, individuals 55 or over can make yearly "catch-up" contributions of $1,000, but only one catch up contribution can be made per HSA account.

Amounts contributed to a Health Savings Account are tax deductible. This means that someone who pays for an expense from his or her Health Savings Account saves the equivalent of that person's federal marginal tax rate (and state marginal tax rate in almost all states with state income taxes), including taxes for Social Security and Medicare. For example, an individual who has a $1,000 expense to pay and who has a 32% federal marginal tax rate and no state income tax will actually only be paying $680 for the service if s/he pays that from his or her Health Savings Account.

How Does A Traditional Office Visit Co Pay Plan Work?

Traditional office visit co pay plans have a co pay for items like doctors' visits and a deductible (possibly with co-insurance thereafter) for major expenses like hospitalization. Some ACA plans have co pays for primary care office visits (or co pays for a limited number of primary care office visits), and specialist (and, if applicable additional primary care) visits are covered after the deductible. With other co pay plans all primary and specialist visits have co pays.

These plans include drug coverage. Drug plans may have separate deductibles for the hospital/medical portion of the plan, BUT covered expenses for drugs count against the plan’s maximum out-of-pocket limit. (NOTE: some office visit co pays have no deductibles at all, others have a deductible only for hospital/medical, and others may have separate deductibles for both hospital/medical AND drug coverage).

The ACA permits only two individual deductibles and one family deductible. Hospital/medical deductibles, co pays and co-insurance AND drug deductibles, co pays, and co-insurance, as applicable, count against the maximum out-of-pocket limit.

What Does This Mean For Me?

An individual or family purchasing an Affordable Care Act plan will normally have choices to select EITHER a High Deductible Health Plan (with or without a separate HSA account) or a traditional office visit co pay plan. Individuals who have always had traditional office visit co pay plans may find that it's more cost effective to purchase a High Deductible Health Plan and fund a Health Savings Account.

HSA Calculator

This calculator developed by Bank of America is designed to help you calculate your savings if you buy a High Deductible Health Plan and establish a health savings account. By using an HDHP/HSA solution, you can often realize significant savings on your insurance premiums and receive a deduction on your income taxes.

You can also add a hospital indemnity and/or accident medical expense plan to your current health coverage to reduce your exposure to large out-of-pocket expenses in the event of hospitalization due to a sickness, or to an accident. Click here to obtain a quote.