Why most "high deductible" policies are not HSA-qualified

If you have a health insurance policy with a "high deductible," chances are, it is not qualified under IRS regulations to work in conjunction with a health savings account.

One of the most common misconceptions I have encountered regarding health savings account plans is the impression that people can use their current policy with an HSA if it happens to have a “high deductible.”  In most cases, this is incorrect. The law requires more than just a high deductible, and the high deductible itself must fall within specific guidelines.

Here is a checklist to help you determine whether your current health insurance policy is HSA compatible pursuant to IRS Regulations. Your policy is NOT HSA qualified if any of the following apply:

•There are any co-pays prior to meeting the deductible for any type of medical care (including Dr. visits and Rx drugs)

Example: A family of 4 has a policy with a 4,000 deductible. They have $30 co-pays for regular Dr's visits and $15 co-pays for generic Rx drugs. This policy is NOT HSA compatible for at least 2 reasons: 1) co-pays for medical services other than preventative care prior to deductible being met, and 2) co-pays for Rx drugs prior to deductible being met. Either one of these pre-deductible co-pays would single-handedly disqualify the policy. NOTE: The policy may also be disqualified due to the characteristics of the deductible and/or total out-of-pocket expenses (see discussion below).

There is a small, limited exception to this rule: A policy may have a co-pay that bypasses the deductible and still be HSA-qualified if the co-pay is only for preventative care, i.e., wellness exams. This is the only type of co-pay that is allowed under an HSA-qualified high deductible plan.

• The deductible or out-of-pocket maximum falls outside any of the ranges listed below

Example: A family of 4 has a policy with a 4,000 deductible. The deductible is per person, maximum of three per calendar year. After deductible, covered expenses are paid at 100%. This policy is not HSA qualified because the maximum family deductible is 12,000 (4,000 x 3) which exceeds the maximum allowable deductible for a family of 11,200.

Example: A family of 4 has a policy with a 4,000 deductible. The deductible is per person, maximum of two per calendar year. After the deductible is met for any given person, the policy pays 80% of the next $10,000, leaving the insured responsible for 20% of the next $10,000. This policy is not HSA qualified. Although the deductible itself does fall within the range of allowable family deductibles (4,000 x 2 = 8,000 which is less than 11,200), the policy fails the HSA compatibility test because the out-of-pocket maximum exceeds the maximum amount allowable. The maximum out-of-pocket under this policy is $12,000 for a family, which exceeds 11,200. (4,000 deductible per person plus 2,000 co-insurance per person equals 6,000 out-of-pocket per person, times 2 persons, maximum equals 12,000 total out-of-pocket).

If your current "high deductible" policy is not HSA compatible, you must apply for a new, properly qualified HSA policy in order to be eligible to establish and fund a tax-qualified health savings account.

If you have any questions about the viability of your current policy, please feel free to call our offices, or email us from the "contact" page. And of course, if you need to purchase a properly qualified HSA high deductible policy, we would be honored to have the opportunity to be of service.

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