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What is HSA-qualified health insurance? The full breakdown

At a glance:

  • What is HSA-qualified health insurance?

  • Minimum deductibles for HSA-qualified health insurance

  • Limits on out-of-pocket expenses for HSA-qualified health policies

  • Covered benefits of HSA-qualified health insurance

  • Preventive care coverage by HSA-qualified health insurance

  • Summary of HSA-qualified health insurance

You must be covered by an "HSA-qualified" plan to be able to take full advantage of a health savings account. HSA-qualified plans generally cost less than a traditional health care policy.

This means that you can put the money you save on insurance premiums into your health savings account to help build up your store of funds for future out-of-pocket medical expenses.

We will look at the requirements for the health insurance that will make you eligible for an HSA.

What is HSA-qualified health insurance?

The term "HSA-qualified" insurance refers to health insurance policies that meet certain requirements relating to deductibles, out-of-pocket expenses, covered benefits, and preventive care.

Plans that meet these requirements are also called "high deductible health plans" or "HDHPs." However, not all policies with high deductibles make individuals eligible to contribute to an HSA.

HSA-qualified plans generally have lower premiums and higher deductibles but in most other ways resemble traditional health insurance plans. A HSA-qualified plan can be licensed as an HMO, a PPO, or other type of insurance plan.

Buyer's guide

Don't let the type of plan (HMO, PPO, etc.) fool you. But any plan that is HSA-qualified should include a statement that it meets the qualifications for an HSA-qualified high deductible health plan.

Minimum deductibles for HSA-qualified health insurance

In order for a health insurance policy to be "HSA-qualified," the policy must have an annual deductible that is at least $1,400 for individuals with self-only coverage or $2,800 for individuals with family coverage beginning in 2020.

The annual deductible also cannot exceed $6,900 for self-only coverage or $13,800 for family coverage beginning in 2020. If your policy has an annual deductible below or above these amounts for 2020, it is not an HSA-qualified policy.

How the deductible applies

Policies offering "family coverage" usually apply the deductible to the entire family.

For example, this means that if your family policy has a deductible of $4,000, the deductible applies to all medical expenses incurred by any of your family members combined. This means that one family member could incur all $4,000 of medical expenses before the deductible is satisfied. However, some policies may apply separate deductibles to individual family members.

Buyer's guide

Make sure your policy has a deductible that meets the requirements, especially as the required amounts change over time.

The level of deductible you choose will impact your premium and savings opportunity. Higher deductibles can lower your premium significantly and provide savings that you can put into your HSA account each year.

However, you may not want to choose policies with the highest deductibles, at least initially, because the amount you can contribute to your HSA account to cover the deductible is limited each year.

Over time, you may accumulate enough funds in your HSA to lessen the impact of higher deductibles.

In addition, individuals age 55 or older can make additional contributions to their HSA accounts each year, which may help you accept policies with higher deductibles.

Paper with words  health savings account (HSA) on a table.
Over time, you may accumulate enough funds in your HSA to lessen the impact of higher deductibles. (Photo: Getty Images)

Limits on out-of-pocket expenses for HSA-qualified health policies

"HSA-qualified" policies must also limit annual out-of-pocket expenses paid by you or your family for covered benefits under the plan.

After you or your family reaches this out-of-pocket limit, the plan must pay 100% of the cost of benefits covered under the plan ("in network" benefits only) for the remainder of the plan year.

The limits

For 2020, the out-of-pocket limit cannot be any higher than $6,900 for individuals with self-only coverage or $13,800 for individuals with family coverage.

Out-of-pocket limits can be as low as $1,400 for self-only coverage or $2,800 for family coverage beginning in 2020. If your high deductible policy has an out-of-pocket limit above or below these amounts, it is not an HSA-qualified policy.

(The amounts are adjusted annually for inflation and may increase from one year to the next.)

It is possible for your policy's out-of-pocket limit to be as low as your policy deductible, in which case the plan pays 100% of covered benefits after your deductible is met.

Other policies may charge coinsurance (e.g., 20%) for covered benefits received after the deductible is met, up to a higher limit on total out-of-pocket expenses.

Under HSA-qualified policies, the deductible, copays, and coinsurance amounts paid under the plan must count towards meeting the out-of-pocket limit on expenses.

Buyer's guide

Make sure your policy has a limit on out-of-pocket expenses that meets the requirements.

The out-of-pocket limits for HSA-qualified plans can offer two significant benefits to you and your family when compared to traditional policies, especially if you have high medical expenses.

First, some traditional policies do not have a limit on out-of-pocket expenses, leaving individuals and families exposed to unlimited and unpredictable expenses each year.

Second, the deductible, copays, and coinsurance amounts paid under an HSA-qualified plan must count towards meeting the out-of-pocket limit on expenses.

Under some traditional policies, the deductible and copays do not count towards meeting the out-of-pocket limit.

The level of out-of-pocket limit you choose will impact your premium. Some policies offer out-of-pocket limits as low as the deductible, meaning after you have met your deductible, the plan pays 100% of covered benefits. However, policies with higher limits may have lower premiums.

Over time, you may accumulate enough funds in your HSA to lessen the impact of higher out-of-pocket limits.

In addition, individuals age 55 or older can make additional contributions to their HSA accounts each year, which may help you accept policies with higher out-of-pocket limits.

Covered benefits of HSA-qualified health insurance

There is a common misperception that HSA-qualified policies are inferior to traditional insurance policies. This is generally not the case.

Typically, the benefits covered by HSA-qualified plans are identical to traditional policies. The major difference is the amount of the deductible and the limit on out-of-pocket expenses.

Same insurance laws

HSA-qualified policies are subject to the same insurance laws and regulations as other policies (HMOs, PPOs, indemnity policies, etc.).

This means that the same benefit mandates, premium regulations, and consumer protections prescribed by each state (and the federal government) apply to HSA-qualified policies. As with traditional policies, HSA-qualified policies must be approved for sale by your state insurance department.

An exception

The only exception to this is policies offered by companies (typically larger companies) that self-insure their employee health benefits.

However, these policies are regulated by a federal law known as "ERISA" which allows companies to offer policies to their workers that provide the same benefits regardless of which state the employees work.

An important difference to remember

One important difference between traditional plans and HSA-qualified plans is that the deductible must apply to all covered benefits under an HSA-qualified plan, including the cost of prescription drugs.

This means that an individual or family could meet their deductible solely through prescription drug expenses.

In this Friday, July 8, 2016, photo, pharmacist technician Irene Arrenquin fills a prescription for the anti-diarrhea drug diphenoxylate hydrochloride and atropine sulfate at Pucci's Pharmacy, in Sacramento, Calif. The drug is one of several that has seen a significant cost increase in recent months. In an effort to discourage drugmakers from raising their prices too quickly or introducing new medications that are unaffordable to the average person, state Sen. Ed Hernandez, D-Azusa, has introduced legislation that would require drugmakers to provide advance notice before making big price increases. (AP Photo/Rich Pedroncelli)
Pharmacist technician Irene Arrenquin fills a prescription. (Photo: AP Photo/Rich Pedroncelli)

If you take a lot of prescription medicines, you may pay more out of your own pocket when you pick up your prescription than the $15 or $20 copays you may be used to paying, but you may also hit your deductible faster and reach higher levels of insurance coverage more quickly (e.g., 80% or 100% coverage).

As with traditional policies, HSA-qualified policies may have different levels of covered benefits depending on whether they are provided by "in-network" or "out-of-network" physicians, hospitals, and other medical providers. The requirements for HSA-qualified plans regarding deductibles and out-of-pocket expenses described above apply only to covered benefits from "in-network" providers.

Limits on covered benefits of HSA-qualified health insurance

Just like traditional policies, HSA-qualified policies may put limits on covered benefits, such as the number of visits, limit payments to "usual, customary, and reasonable" (UCR) amounts, use formularies or preferred lists for prescription drugs, and require prior authorization before services are provided.

These limitations should be described in your insurance policy. Be sure to read your policy certificate and determine whether the coverage is what you and your family need based on your family’s history of medical care use.

All consumers should learn as much as possible about the scope of coverage under their insurance plan. In particular, you should not assume that once the plan’s deductible or out-of-pocket limit is met, all remaining medical expenses will be paid by the plan.

Everyone should understand what their plan will and will not cover once their deductible and out-of-pocket limits are met.

As is the case with any type of health insurance, benefits are subject to the definitions, limitations, and exclusions described in the policy and are payable only if determined by the plan that they are medically necessary. However, such decisions may be subject to plan reconsideration and external appeal.

Buyer’s guide

As with any insurance contract, the amount of covered benefits affects your premium.

Pay close attention to the details of what benefits are covered by the plan and under what circumstances, what is not covered (or "excluded") and under what circumstances, and the types of medical providers from which covered benefits are available. Make sure you understand what expenses count towards satisfying your policy deductible and out-of-pocket limits.

If you are chronically ill and take several prescription medications, you may satisfy your HSA-qualified policy deductible with your drug expenses alone. Although this means that you pay the total cost of your prescriptions while your deductible is in effect, you will pay only the negotiated cost of your medicines, not the full retail price. This is one of the benefits of your HSA-qualified policy.

Another benefit is that since these prescription expenses count towards meeting your deductible, you may hit your deductible and out-of-pocket limits faster than under a traditional policy, which means your policy could pay 100% of covered benefits sooner than a traditional policy.

Also pay attention to whether your doctor(s) and any other medical providers you are used to using (including hospitals, pharmacies, etc.) are in your plan’s provider network or you may have higher out-of-pocket expenses.

DENVER CO - OCTOBER 31: Macy Kim, Nurse Practitioner at Inner City Health Center, does a heath checkup on Abel Rodriguez, 12, on October 31, 2019 in Denver, Colorado. Inner City Health Center provides care for those who don't have insurance or are underinsured. (Photo by RJ Sangosti/MediaNews Group/The Denver Post via Getty Images)
Macy Kim, Nurse Practitioner at Inner City Health Center, does a heath checkup on Abel Rodriguez, 12, on October 31, 2019 in Denver, Colorado. (Photo: RJ Sangosti/MediaNews Group/The Denver Post via Getty Images)

Preventive care coverage by HSA-qualified health insurance

All health insurance policies, including HSA-qualified plans, must provide coverage for specific preventive care services on a first dollar coverage basis without charging copays or coinsurance, and without applying the policy deductible to these expenses. This new requirement was added starting in 2011.

A list of the preventive benefits policies must cover can be found at Preventive Care Benefits. The list includes, but is not limited to:

  • Periodic health evaluations, including tests and diagnostic procedures ordered in connection with routine examinations, such as annual physicals

  • Routine child care

  • Child and adult immunizations

  • Certain screening services

Plans may cover additional preventive care benefits at their option and may charge copays, coinsurance, and/or apply the policy deductible to these expenses.

Buyer's guide

Be sure you understand the details of the preventive care services covered by your plan. If you are uncertain, ask your insurance carrier for more a detailed explanation.

Summary of HSA-qualified health insurance

The first step towards having an HSA is to have a health insurance plan that is qualified to partner with an HSA. You can find such plans through most insurance companies.

Once your HSA-qualified policy has become effective, you may begin to fund your health savings account and start saving for your future medical expenses.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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