What are the Benefits of Having an HSA?

Whether you are beginning a new job or reviewing your options during open enrollment, it can be difficult to know which health insurance option to choose. In order to make an informed decision, it is important to first understand the differences in benefits offered. One big concern during the benefit election is selecting the right health insurance plan. Health insurance is not a one size fits all approach, so it is important to understand the benefits that are being offered so that you can make an educated choice. Understanding the difference between traditional and HSA compatible plans can help you make the right decision for yourself and your family.

What is an HSA?

A health savings account (HSA) is an account that is set up through a participating bank or credit union that allows members to contribute pre-tax monies to an account, up to certain annual contribution limits set by the IRS. Members can then use the money in this account to pay for qualifying medical expenses.

Types of Health Insurance Plans

When considering health insurance, there are essentially two primary categories – traditional plans and high deductible health plans (HDHP) that are health savings account (HSA) compatible.

Traditional plans are what many people usually think about when discussing health insurance. In a traditional plan, members usually are able to utilize their benefits, including copays, without meeting their deductible first. Typically, the monthly premiums for traditional plans are more expensive than the premiums for HSA compatible plans.

In an HSA compatible HDHP, members must first satisfy their annual deductible before their benefits, like copays, take effect. Given that most plan benefits don’t kick in until the annual deductible has been met, the monthly premiums for HDHP/HSA plans are often lower than those for traditional plans.

Many traditional plans and some HDHP/HSA plans can potentially cover certain types of preventive care services without requiring the payment of copays or deductibles.  Be sure you review your plan documents or speak with an experienced insurance agent if you have any questions about preventive care services under your health insurance plan.

Traditional Plans vs. HSA Plans

Below is an illustrative example that helps demonstrate some of the differences between a traditional health plan and a HDHP coupled with an HSA.  Please note that all insurance policies, including both traditional and HDHP/HSA plans, are governed by their specific policy terms, conditions, coverages, limitations, and exclusions. As such, the following example is for demonstrative purposes only and may not reflect actual claims procedure.

Joe, who has a traditional health plan, gets sick and needs to go to the doctor’s office. When Joe is at the doctor’s office, he pays a copay for the office visit. At the doctor’s office, they prescribed Joe a medication. Joe then goes to the pharmacy and picks up the medication, and he pays a copay there as well. Payment for the remainder of the costs associated with Joe’s office visit and medication will depend on the terms of Joe’s policy – potentially, Joe might only have to pay the two copays out of pocket with the rest of the expenses being paid by the insurer. Alternatively, depending on the circumstances, Joe may also have to contribute towards a deductible or a coinsurance requirement in addition to the copay, with the remainder being paid by the insurer. Either way, Joe is likely going to get some assistance for these expenses from his insurer instead of having to pay for everything out of his own pocket.

Jane, who has a HDHP with an HSA, also gets sick and needs to go to the doctor’s office.  Jane’s doctor prescribes her medication, which Jane then goes to the pharmacy to pick up. Assuming that Jane has not met her annual deductible, she would pay the full cost of the doctor’s visit and the medication out of her own pocket.  If Jane has been contributing to an HSA, she can use those funds to pay for her medical bills. (If Jane had satisfied her annual deductible, then she may still have to pay a certain portion of those costs out of her own pocket as part of a copay/coinsurance requirement, up to her annual out-of-pocket maximum, with the remainder potentially being paid by the insurer).

Why Do People Choose to Have an HSA?

There are many potential benefits to having an HSA plan.

• Plans can sometimes be more affordable due to lower premiums than traditional options.
• Members can use pre-tax money to fund HSA.
• Using pre-tax money can help lower taxable income and reduce tax liability.
• Members can pay for health-related costs with tax-free monies.

On the other hand, there are potential drawbacks to having an HDHP/HSA plan. In the event that you incur substantial medical expenses in a year, you may have to pay a significant amount of money out of pocket (between your deductible, copays and coinsurance) before you reach your annual out of pocket maximum. This could potentially mean that your out-of-pocket expenses may be greater than what you would have incurred under a traditional health insurance plan. Some people are comfortable taking on that risk in exchange for the potential benefits of an HSA (such as lower premiums and the ability to save pre-tax dollars), whereas others are not.  In the end, this is a personal decision that each person must make on their own. 

Is an HSA Right for Me?

To understand if an HSA plan is right for you, you need to first reflect on you and your family’s physical and financial state. Reflect on your overall health. Are you and your family relatively healthy? Do you only visit the doctor for wellness visits and routine checkups? Do you have a savings account that could support paying the deductible for your health insurance plan? Are you comfortable accepting the risk that you may have high out of pocket expenses before you reach your annual out of pocket maximum? If you answered yes to these questions, you may want to consider learning more about HSA compatible plans.

HSA Qualifying Expense Examples

Members that have HSA accounts can use this money for qualifying events that could include:

• Office visit copays
• Over the counter and prescription medications
• Some hygiene products

HSA Limitations for 2023

The IRS sets an annual inflation-adjusted limit on HSA contributions. These limits are for HSA contributions, HSA catch-up contributions, HDHP minimum deductibles and HDHP maximum out of pocket maximums. For the year 2023, the IRS set the following limits for members and their families.

2023 Limitations	Self-Only	Family
HSA Contribution Limit	$3,850	$7,750
HSA Catch-up Contributions	$1,000	N/A
HDHP Minimum Deductibles	$1,500	$3,000
HDHP Maximum Out of Pocket Amounts	$7,500	$15,000

 

Health Insurance Quotes

Understanding health insurance options can be difficult and confusing at times. Cross Insurance can help you explore your options when it comes to individual or group health insurance. To find out more, contact your local Cross Insurance today.

 

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This article is for general informational purposes only and is not to be relied upon or used for any particular purpose. Cross Insurance shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, insurance, accounting or other professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article are that of its author and do not necessarily represent the views of Cross Financial Corp. and its subsidiaries and affiliates (“Cross Insurance”) or Cross Insurance’s management or shareholders.