Co-Pay Plans vs. HSA Plans with a High Deductible

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There are two basic types of major medical health insurance plans: Traditional co-pay plans (either PPO or HMO), and the newer high deductible health plans (HDHP). These may or may not be linked to a tax – favored health savings account (HSA).

Co-pay plans vs. H S A (Health Savings Account) Plans

Traditional Co-Pay Plans:

  • generally have set co-pay amounts for services, especially doctor visits
  • generally have more predictability for out of pocket medical expenses
  • generally cost more in premium than HSAs for the same overall cost exposure

HSA Plan Pros:

  • higher deductible = lower premiums
  • HSA’s have a single, combined deductible for the whole family instead of seperate deductibles
  • if you choose the no co-insurance option, it can lower your overall exposure
  • contributions to an HSA are tax deductible whether spent on medical services or not
  • unspent contributions to an HSA roll-over to the next year
  • some HSA plans have a co-pay for doctor visits

What is a Health Savings Account?

A Health Savings Account is an alternative to traditional health insurance. It is a savings product that offers a different way for consumers to pay for their health care. HSAs enable you to pay for current qualified medical expenses, and save for future qualified medical and retiree health expenses on a tax-free basis.

You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of an HSA. An HDHP generally costs less than what traditional health care coverage costs, so the money (or some of the money) that you save in insurance premiums can therefore be put into the Health Savings Account, and will be available to pay for medical expenses up to your deductible. After you reach your deductible, your medical expenses are generally covered 100% by the insurance company.

You own and you control the money in your HSA. Contributions to an H S A are not use-it-or-lose-it, so unused funds “roll over” at the end of the year, and remain available for use the next year. Decisions on how the money is spent are made by you, without relying on a third party or a health insurer. Like any savings account, HSAs also earn interest. You can decide what bank your HSA monies are kept in, and therefore, what amount of interest the account will earn. Some HSAs even have investment options to make the money in the account grow as well.

For 2016, the maximum contribution to an HSA for an individual is $3,350 and $6,750 for a family plan. Participants 55 and older can contribute an extra $1,000, or $4,350 for an individual account and $7,750 for a family account. These contributions are 100% tax deductible from gross income.

What Is a “High Deductible Health Plan” (HDHP)?

You must have an HDHP if you want to open an HSA. Sometimes referred to as a “catastrophic” health insurance plan, an HDHP is an inexpensive health insurance plan that generally doesn’t pay for the first several thousand dollars of health care expenses (i.e., your “deductible”) but will generally cover you after that. Of course, monies that you have put into your HSA is available to help you pay for the expenses your plan does not cover.

For 2016, in order to qualify to open an HSA, your HDHP minimum deductible must be at least $1,300 (self-only coverage) or $2,600 (family coverage).

The annual out-of-pocket maximum (including deductibles and coinsurance) for 2016 cannot exceed $6,550 (self-only coverage) or $13,100 (family coverage), although ACA (Affordable Care Act) plans have slightly higher out-of-pocket limits for HDHPs at $6,850 for an individual and $13,700 for a family.

Since September 23, 2010, all ACA plans and HDHPs have first dollar coverage (no deductible or copay) for preventive care. HDHPs, and most plans in general, have higher out-of-pocket limits for non-network services.

JFG has been advising clients about the benefits of HSA plans since they first became available in 2003. We have helped many, many people, both in the individual and the small group market decide which situation is better for them: an HSA plan, or a traditional co-pay plan. HSA plans are a great way to save money in premiums, and get an additional tax write-off, but they aren’t for everyone. There are many factors that need to be considered before deciding if an HSA plan is right for you. We are experts at HSAs, and health insurance in general, and we are available to give you free advise as well – just contact us.

Click here to view an HSA Presentation from one of our many carriers. It gives more information about how health savings account plans work. Then, call us at 443-807-7311 for expert advice in determining if an HSA plan would be the best plan for your particular situation.