All High Deductible Health Plans Are Not Created Equal

by Mr. HSA, Roy Ramthun

Much has been written about high deductible health insurance plans in recent times.  It’s hard to believe that just a little over 15 years ago hardly anyone had heard of a high deductible health plan.  Now it seems that they are everywhere, from employer-sponsored plans to individual plans purchased on and off the state health insurance exchanges.  Long gone are the days of HMO plans with zero or minimal deductibles, PPO plans with $200 to $500 deductibles, or other similar plans. Many Americans now find themselves enrolled in health insurance plans with much higher deductibles than they ever could have imagined.

What exactly is a “high deductible health plan,” and how high must the deductible be to qualify as such?  There is actually quite a bit of subjectivity in how different people might answer the question. For some, any health insurance plan with a higher deductible than their current or previous plan would be considered a “high deductible” plan.  Others have arbitrarily decided that any health insurance plan with a deductible of $1,000 or greater for self-only coverage is or should be considered a high deductible plan.

Not to add to the confusion but health insurance plans that make Americans eligible for health savings accounts (HSAs) have a very strict definition they must meet to be considered a “high deductible health plan.”  In 2004 when HSAs first started, that deductible was set at $1,000 for self-only coverage and $2,000 for family coverage (i.e., coverage other than self-only coverage). This could be where some got the arbitrary $1,000 threshold for the definition of a high deductible health plan.  However, the minimum deductible for HSA-qualified high deductible health plans is adjusted annually for inflation. For 2019, HSA-qualified plans must have a deductible of at least $1,350 for self-only coverage or $2,700 for family coverage.

These differences matter when talking about health plans with “high” deductibles.  Only the HSA-qualified plans must meet the strict minimum deductible requirements stated above.  Other plans that might have “high” deductibles do not have this requirement, and their deductibles could be considered “high” using whatever standard one chooses.  And even though one’s health plan deductible might be high enough, it does not mean every “high deductible health plan” makes them eligible for an HSA.

HSA-qualified health plans have other requirements they must meet in addition to the minimum deductible.  First, the deductible must be applied to all benefits covered by the plan (including prescription drugs). The only allowed exception is a specific list of preventive care services.  The other major requirement is that these plans must also limit annual out-of-pocket expenses to no more than $6,750 for self-only coverage or $13,500 for family coverage for 2019. Like the minimum deductibles, these limits started at lower amounts in 2004 and have risen over time, as they are also adjusted annually for inflation.

The types of benefits that other health plans with high deductibles typically offer which disqualify a plan from HSA compatibility include:

  • Prescription drugs (including generics) under a tiered copay program or separate deductible well below $1,350 (self-only coverage) / $2,700 (family coverage)

  • first dollar coverage of office visits (not limited to preventive care)

  • coverage of other “preventive care” benefits not on the IRS-approved list (e.g., vasectomies for adult males).

Another way health plans providing coverage to families may disqualify their enrollees for HSAs is to apply separate deductibles to individual family members that are below the minimum deductible of $2,700 (for 2019).  For example, the policy might have an overall deductible of $10,000 that applies to the entire family but separately applies a $2,500 deductible to individual family members. While this provides better protection for family members that may have high medical bills, it also disqualifies the health plan from HSA qualification.  However, a similar plan that applied a $3,000 deductible to individual family members would be HSA-qualified.

How can someone tell which plans with high deductibles are HSA-qualified?  Unfortunately, there is no requirement that the health plan sponsor disclose that a plan is “HSA-qualified.”  It is often easier to tell which plans are not qualified by reviewing the plan details for some feature that does not meet the requirements for an HSA-qualified plan.  It is much harder to determine whether a health plan is HSA-qualified without reviewing all the plan documents and perhaps the policy contract itself.  Most consumers would likely not spend the necessary time researching the policy even if they knew what they were looking for.  So we are forced to rely on the voluntary disclosure of a health plan’s HSA qualification status from the plan sponsor – the employer or the insurance carrier.

Thankfully, online insurance sales platforms like ehealthinsurance.com and others have made it easy to search for HSA-qualified plans for over a decade.  Health plans sold through state insurance exchanges on Healthcare.gov now have this visibility as well.  However, I have not been able to verify whether all the states operating their own insurance exchanges offer this option.

So why does it matter whether someone purchases an HSA-qualified health plan or another high deductible health plan that is not HSA-qualified?

First, the HSA-qualified health plan may offer superior protection against large medical expenses than non-qualified plans.  In fact, the maximum annual out-of-pocket limits for HSA-qualified plans are significantly lower than is required under the Affordable Care Act.  Unfortunately, many consumers focus only on the health plan’s deductible but pay no attention to the out-of-pocket limits under the plans they are considering even though the latter determines their true out-of-pocket risk each year.

Second, HSA-qualified health plans make individuals eligible to establish and contribute to HSAs.  HSAs offer numerous advantages, including a dedicated savings account for putting aside money for expected and unforeseen medical expenses.  Many Americans have no other opportunity like this because they are self-employed, unemployed, or do not work for an employer that offers HSAs or similar programs such as Flexible Spending Arrangements (FSAs) or Health Reimbursement Arrangements (HRAs).

So why don’t more Americans choose HSA-qualified plans?  Although increasing numbers suggest that they are, many are not offered the option while others don’t enroll in the plans because they don’t understand them.  Others enroll in HSA-qualified plans but later find out they are not eligible for an HSA because of some other coverage that disqualifies them from an HSA (e.g., Medicare).  Still others may be enrolled in an HSA-qualified plan against their will, such as when their employer only offers an HSA-qualified plan(s).

Paying attention to the details of plans with high deductibles can make a huge difference in today’s market.  Plans that are “HSA-qualified” provide superior protection and offer an opportunity to save additional money on out-of-pocket costs as well.  It’s worth understanding these differences so look closely at the details.

Bryan CaplanComment