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    April 11, 2017

    As an Employee Benefits Attorney, I deal with HSAs a lot and this article glosses over one of the most important requirements to be eligible to contribute to an HSA. You must have a high deductible health plan (HDHP). That tends to be a significant consideration and risk factor when going with an HSA. If you are young, healthy, and make a good amount of money, an HDHP with an HSA is a good option for you. But, for a lot of people this is not a good option for a few reasons:

    HDHPs require a minimum annual deductible of $1,300 (single coverage) or $2,600 (family coverage), but most HDHPs have deductibles MUCH higher than this. The average HDHP has a deductible set at $3,000 – $5,000 (single coverage) and $6,000 – $12,000 (family coverage). This means, if you need to go to the doctor or hospital, you have to pay for (nearly) everything until you’ve spent the deductible amount on your healthcare. Many people don’t have $3,000 – $12,000 to spare on out of pocket medical expenses every year.

    If you are healthy, rarely go to the doctor, only receive preventive care (covered at no cost under the ACA) and are low risk for catastrophic accidents, then this option could be a good fit (especially with the lower monthly premiums HDHPs have). Then, it can be a great way to set aside tax-free money for your medical expenses. If you do end up getting sick or have an accident, then you have a few months or years worth of tax-free money you can use to cover the $3,000 – $12,000 you will have to pay out of pocket. But again, this rest on the assumption that you make enough money to set aside a good amount from your check to put in the HSA.

    If you are older, an HDHP usually isn’t a good fit because as you age you have more health concerns (thus, receive more health care). Unless you have been saving in advance, you run into the same problem of having to spend $3,000 – $12,000 out of pocket every year on top of the monthly medical premium you pay.

    Prior to the age of 65, funds in your HSA can only be used for medical expenses. So, in that way, it is quite limiting if you have a financial emergency and need to get to that money.

    I used to have an HDHP with an HSA but I left that plan at renewal this year. I fit all the factors for someone that’s a good fit for an HDHP with an HSA – young, healthy, low-risk, has the funds to cover the deductible out-of-pocket. However, you have one bad claim (like I did last year), a HDHP can leave you feeling robbed. In my case, I paid monthly premiums of $150+ per month/$1,800 per year (costs even more for people that don’t get coverage through their job), and nonetheless still had to pay $2,000 worth of bills out of pocket for one hospital visit. Even after spending that $2,000, you likely still haven’t met your deductible so you will still be paying for nearly every other doctor visit you have that year after that. Then, the next year you start over at $0 again and must spend $3,000 – $12,000 before your insurance pays (excluding preventive care).

    Annual deductibles are the norm, but the issue with HDHPs is that those deductibles are so high. On a traditional health plan, deductibles range from $0 – $2,000 – a much more manageable out-of-pocket cost figure for the average person.

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