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Health Insurance Comparison: HSA-Qualified Plans vs. Traditional Plans

Health Insurance Comparison: HSA-Qualified Plans vs. Traditional Plans

 

Choosing a health insurance plan is a decision that can significantly impact your present and future financial state and medical well-being. And while healthcare plans can seem daunting, they aren’t so bad once you break them down. HSA-qualified high deductible health plans are a perfect example; just hearing “high deductible” can leave folks scrambling for a different plan. However, when you break them down, HSA-qualified plans (HSAQPs) can be a financially savvy approach for many people. Below, we’ll compare HSAQPs to traditional plans and help you understand which plan might be right for you.

When comparing traditional healthcare plans and HSA-qualified plans (HSAQPs), it’s helpful to consider two concepts: cost and risk. Cost is how much you’ll pay on each plan (premiums, copays, deductibles, etc.), while risk is how much you’ll be responsible for in the case of a serious injury or medical condition. Let’s look at cost first.

Comparing Health Plan Costs

Comparing Plan Premiums

To start, let’s find how much money you’ll save in premiums under an HSAQP, as compared to a traditional plan. You’ll always pay your premiums, no matter how much (or little) you use your coverage during the year. To do this, subtract the HSAQP’s monthly premiums from the traditional plan’s monthly premiums, then multiply that number by 12 to find your annual HSAQP premium savings. For instance, if the HSAQP’s monthly premiums are $200 and the traditional plan’s monthly premiums are $400, your annual premium savings will be $2,400.

Potential HSA Savings

Next, if your health insurance is through your employer, find out if they will contribute into your health savings account (HSA) if you use HSAQP coverage. HSAs are only accessible to HSAQP participants and allow accountholders to contribute tax-deductible funds, grow them tax-free, and use them tax-free for qualified medical expenses. No other savings account can match this triple tax benefit, giving HSA accountholders unparalleled savings on healthcare costs (more about HSAs on page 15). On average, employer contributions to employees’ HSAs are about $500. Since that’s free money only accessible for HSAQP participants, we can add it to the earlier annual HSAQP premium savings.

Comparing Plan Deductibles

So far, we have almost $3,000 in annual savings under an HSAQP. Now, let’s compare out-of-pocket medical expenses, starting with the annual deductible. To do this, subtract the traditional plan’s deductible from the HSAQP’s deductible. For instance, if the HSAQP’s deductible is $3,000 and the traditional plan’s deductible is $1,000, you’ll pay up to $2,000 more under an HSAQP.

Of course, this assumes you hit your deductible each year. If you’re generally healthy, your annual medical costs will likely stay under your deductible. Look back at your doctor’s bills for the last couple of years and see if you can estimate how often you use medical care. The less you go to the doctor, the less out-of-pocket medical expenses you’ll use.

Also, remember that under a traditional plan, your copays often don’t go towards your deductible. While copays in a traditional plan give you a lower cost for doctor’s visits and prescription pickups, those costs likely won’t be included towards your deductible if you have a more serious medical condition later in your plan year. So, if you see the doctor often or have regular prescription visits, an HSAQP may make sense because those costs will all go towards your deductible.

Conclusion

Now, back to the cost comparison. Assuming you hit your deductible, you’d pay $2,000 more under an HSAQP than under a traditional plan. But remember the $2,900 in premiums savings and HSA contributions from your employer. Even if you hit your deductible, you’d still save $900 annually with an HSAQP. Don’t let the higher deductible fool you; an HSA can actually save you money over a traditional plan.

Comparing Health Plan Risk

Paying for doctor’s visits and prescriptions pickup is one thing, but what about a medical emergency? Let’s look at risk, how traditional plans and HSAQPs cover you in the case of a costly medical situation. Here are some typical numbers for a traditional individual PPO plan and an individual HSAQP:

 

 Traditional PPO Plan ($30 copay)HSA-Qualified Plan
Deductible$1,000$3,000
Out-of-pocket maximum (OOPM)$4,500$4,000
Additional prescription OOPM (Rx charges)$15 - $20 per prescription$0
Tax savings (assuming you contribute the maximum amount)$662 (assuming you have an FSA and contribute $2,650)$862 (assuming you have an HSA and contribute $3,450)
Average employer FSA/HSA contribution$0$500
Total Risk$4,500 - $662 + Rx charges = $3,838 + Rx charges$4,000 - $862 - $500 = $2,638

In this example, you’d save $1,200 if you were under HSAQP coverage.

Conclusion

When looking at cost (everyday medical costs) and risk (catastrophic events), HSAQPs actually can come out as the winners in both cases. Their higher before-deductible costs often are overshadowed by their premiums savings and employer HSA contributions. Also, being covered under an HSAQP is one of the eligibility requirements for opening an HSA, which lets you pay for qualified medical expenses tax-free instead of using normal post-tax dollars.

If an HSAQP feels like the right healthcare choice for you, opening an HSA is a no-brainer if you’re eligible. Because of their triple tax benefit, HSAs give you unparalleled savings on medical expenses and allow you to hold onto your funds until you need to spend them. Learn more about HSAs here, or if you’re ready to open an account, you can get started here.

Author: James Denison