HDHP or HSA-qualified Plan? Beware the $1,500/$3,000 Distinction!

Yes, an HSA-qualified plan must have a minimum deductible. But that's not the only requirement.

With the growing popularity of Health Savings Accounts, the popular press continues to write about this financial opportunity. That's great. These articles note that you must be enrolled in a high-deductible health plan to open and fund an account. They state that a high-deductible health plan is coverage with a minimum deductible of at least $1,500 for a self-only or $3,000 for a family plan.

Be careful, however. These deductible levels alone don't define HSA-qualified coverage. Don't put yourself in a compliance pickle by using this rule of thumb alone to determine whether your coverage allows you to participate in a Health Savings Account program.

Definitions

The legislation authorizing Health Savings Accounts refers to high deductible health plans. Most articles in the popular press modify this term slightly to the more correct high-deductible health plan. I - and many others in the industry - prefer the term HSA-qualified plan because it removes the ambiguity inherent in the generic term high-deductible health plan.

Statutory Minimum Annual Deductible

An HSA-qualified plan must have a deductible of at least $1,500 for self-only coverage and $3,000 on a family plan. These figures are reviewed annually for inflation and typically increase every two to years. They always rise in $50 (self-only) and $100 (family) increments and must retain a 1:2 relationship.

The 2023 increases of $100 and $200, respectively, were the first time that the increases exceeded $50 for self-only and $100 for family coverage.

Important point: A family plan can have a per-person deductible (example: a $6,000 family deductible, with each family member's deductible responsibility capped at $3,000). If the deductible is designed this way, the per-person threshold for each covered family member can't be lower than the statutory minimum deductible for a family plan, or no less than $3,000 in 2023.

When Health Savings Accounts launched in 2004, the figures were $1,000 and $2,000, respectively. Plans with these deductible levels or higher were defined in the statute as high deductible health plans.

Many surveys of medical coverage use the $1,000/$2,000 threshold or the current statutory minimum deductible for an HSA-qualified plan as the definition of a "high-deductible health plan." That's unfortunate because:

• Nearly all plans offered by small employers and many sponsored by large companies fit that definition, making it less meaningful than it once was.
• The term high-deductible health plan can't be used as a synonym for an HSA-qualified plan, as explained below.

Plans can impose deductibles much higher than $1,500/$3,000, up to the statutory maximum out-of-pocket (see below). It's not unusual for an employer plan to have a deductible of $2,000/$4,000 or $3,000/$6,000. Individuals who purchase their coverage in the nongroup market (such as through a federal- or state-facilitated exchange, a private marketplace, or directly from an insurer) may face even higher deductibles - up to $9,100 for self-only and $18,200 for family coverage for non-HSA-qualified plans and $7,500/$15,000 for HSA-qualified coverage. (See the "Statutory Maximum Out-of-Pocket section below for an explanation.)

Services Applied to the Deductible

What distinguishes HSA-qualified plans from other coverage that meets the minimum deductible threshold is the services that are applied to the deductible. By law, all services but select preventive care must be applied to the deductible, unless otherwise exempt by statute or regulation (such as temporary rules permitting insurers and employers to cover all telemedicine visits below the deductible).

Quick definition: "Below the deductible" means that a service can be covered in full by the insurer (example: the insurer reimburses a physician in full for a $200 routine physical) or in part (example: the patient pays a $25 copay for a virtual visit and the insurer pays the provider $44 - the balance of the $69 negotiated price).

Of Americans covered by plans with deductibles of $1,500/$3,000 or more, about two-thirds aren't enrolled on HSA-qualified coverage. That's because the insurer pays some or all of some services before the patient satisfies the self-only or family deductible. Common examples include covering diagnostic ("sick") office visits and certain prescription drugs in full after a copay.

Example: Paulo's family coverage has a $4,000 deductible. It covers sick visits in full after a $35 copay for primary-care physicians and $60 for specialists. Because the plan design requires the insurer pays a portion of the bill before the patient satisfies the deductible - even if the patient never receives this care - this plan isn't HSA-qualified. Anyone enrolled is disqualified from opening or funding a Health Savings Account.

Why do insurers offer plans with high deductibles for most services and then cover certain services in full after a copay? They want to reduce financial barriers to high-value care (such as primary-care physician visits and low-price prescriptions) to encourage patients to receive treatment of minor, non-acute conditions or manage chronic diseases before these maladies require expensive surgery or inpatient care.

Statutory Maximum Out-of-Pocket

An HSA-qualified plans can't require patients to may more than $7,500 (self-only) or $15,000 (family) out-of-pocket for covered services. Once the patient or family had incurred that level of financial responsibility, all other covered services are paid in full by the insurer.

Example: Louisa has self-only coverage with a $1,500 deductible and then 30% coinsurance. She suffers a heart attack and is hospitalized for care, including cardiac bypass surgery. The total bill is $92,000. Assuming this was her first care of the plan year, she must pay the first $1,500, then 30% of the next $20,000 ($6,000) to reach the $7,500 out-of-pocket maximum. Her insurer pays 70% of the $20,000 subject to coinsurance ($14,000), then the remaining $70,500. Total payments: $7,500 by Louisa and $84,500 by the insurer.

As high as the statutory out-of-pocket maximum can be, it's less than the $9,100/$18,200 maximum on other plans governed by federal law. In other words, that non-HSA-qualified plan that covers office visits and prescription drugs below the deductible subject to copays can impose other cost-sharing (deductibles and coinsurance) up to levels higher than an HSA-qualified plan.

Notes on the out-of-pocket maximum:

• On family plans, the most that any family member can pay is $9,100 (a figure borrowed from the federal maximum per person noted above). So, an HSA-qualified family plan can impose a $6,000 deductible and $15,000 out-of-pocket maximum, but no family member can pay more than $9,100 out-of-pocket. The $15,000 protects the family from exceeding that figure, and the $9,100 ceiling ensures that one high-claimant family member won't pay more than that amount out-of-pocket for covered services.
• Most employer-sponsored plans cap financial responsibility well below that figure (for example, a $2,500/$5,000 deductible with a $5,000/$10,000 out-of-pocket maximum). That's not a small amount, but plans in the nongroup market often don't cap out-of-pocket financial responsibility much below the $7,500/$15,000 maximum.
• The out-of-pocket cap applies to covered services only. Patients may pay more if their services aren't covered (non-network provider or a service deemed cosmetic) or they incur penalties for failure to follow plan rules.
• The out-of-pocket ceiling applies to in-network services only. If the plan provides coverage for out-of-network care (such as a PPO or POS plan), the out-of-network out-of-pocket maximum isn't regulated by federal law (although state law governing the plan may impose limits).

Is This an HSA-qualified Plan?

Study the following benefit features to determine whether the plan is not HSA-qualified or may be HSA-qualified (the brief description doesn't include a disqualifying benefit).

Plan 1: Family deductible of $5,000, with each family member's deductible capped at $2,500.

Plan 2: $3,000 self-only deductible and provides first-dollar (pre-deductible coverage for annual physicals, routine mammograms, and periodic colonoscopies.

Plan 3: $6,000 family deductible and three diagnostic PCP visits per family member covered in full to encourage prompt treatment of simple conditions that can become acute without prompt intervention.

Plan 4: PPO with a $15,000/$30,000 out-of-pocket maximum on out-of-network services (in addition to a $4,500/$9,000 out-of-pocket maximum for in-network care).

Answers:

Plan 1 is not HSA-qualified because a per-person deductible on a family plan can't be less than $3,000 in 2023.

Plan 2's listed benefits are not disqualifying because select preventive care, including these services, can be covered in full.

Plan 3 is not HSA-qualified because, although the logic is sound, no diagnostic visits can be covered below the deductible.

Plan 4's high out-of-pocket maximum is not disqualifying because the in-network figure is within the federal ceiling and out-of-network amount is not subject to the federal ceiling.

Whom to Trust

How can you make sure that your plan is HSA-qualified? If you enroll in employer-sponsored coverage, your company or broker should know. They generally do - but not always. If you buy in the nongroup market, the seller (usually a private or public marketplace, or the insurer itself) should know - but isn't always correct. The insurer certainly should know and is most likely to provide the correct information. Your state insurance department also should be able to provide the right answer - though state regulators aren't always expert in federal tax law applied to medical-plan design.

The Bottom Line

You should be able to rely on your state regulators, government-facilitated marketplace, insurer, or employer to know which plans are HSA-qualified. But they sometimes make mistakes and label plans HSA-qualified based on the deductible level without examining other benefits that may be disqualifying. If you're opening and funding a Health Savings Account, you ultimately are responsible for compliance with federal law. Be sure to take this responsibility seriously.

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