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

Health Savings Accounts (HSA’s) can be used in conjunction with High Deductible Health Plans that have out-of-pocket maximums for 2020 at or below $6,900 for individuals or $13,800 for families (maximums will be increased to $7,000 and $14,000 in 2021) 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 2020 ACA plans, BUT HSA’s cannot be established for any High Deductible Health Plan that has out-of-pocket maximums that exceed the $6,900/$13,800 threshold for 2020 (these amounts will be increased to $7,000/$14,000 in 2021).

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 rather than buying a Silver, Gold or Platinum plan.

High Deductible Health Plans have a maximum single deductible AND family deductible of $6,900 and $13,800 respectively for 2020 (increasing to $7,000 and $14,000 for 2021). Note that higher deductible ACA plans are and will be available for 2020 and 2021 plans, BUT these plans can’t qualify as High Deductible Health Plans and hence can’t be coupled with an HSA.

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.

Traditional office visit co pay plans have a co pay for items like doctors' visits and a deductible (possibly with coinsurance thereafter) for major expenses like hospitalization. Traditionally, these plans had separate coverage for outpatient drug expenses, either with or without a deductible but with co pays and or coinsurance.

Before 2014, people who had these kinds of plans had a separate deductible for health expenses and, in essence, a separate plan to pay for drugs. While the health care part of the plan usually had out-of-pocket limits, the drug portion of the plan often had no such limits. Most of these plans required three separate family deductibles until the family deductible could be met.

The Affordable Care Act changed how these plans work. The ACA permits only one individual and a family deductible. Moreover, the drug portion of the plan counts against the maximum out-of-pocket limit, whereas formerly the drug plan operated essentially as a separate plan with or without an out-of-pocket maximum for drugs.

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.