Tag Archives: Deductible

HDHP Minimum Deductible and Out of Pocket Max – Defined

Overview

As with many things HSA related, the HDHP (High Deductible Health Plan) definitions are more complicated than they need to be. Each year, the IRS defines what plans are “HSA eligible” meaning those plans allow you to open and contribute to a Health Savings Account. The definition consists of two attributes – Minimum Deductible and Out of Pocket Max. Moreover, these two attributes vary based on the type of coverage you have, which is either self-only or family. Note that even if you get those right and your plan is an HDHP (and by definition, HSA eligible), there are still other requirements that determine your HSA eligibility – this is just the first of 4.

The goal of this article is to explain the HSA Minimum Deductible and the Out of Pocket Max, what they are, their amounts for a given tax year, and go through some examples of how they work and what plans qualify.

Minimum Deductible

All insurance plans have a deductible, or the amount you must pay before insurance kicks in and begins covering expenses for the year. This amount can vary between $0 and many thousands of dollars. To be HSA eligible, a plan must have a deductible greater than or equal to that year’s Minimum Deductible. In essence, it defines the “High” part of High Deductible Health Plan. It says, “if you want to contribute to an HSA, your insurance deductible must be at least this amount”.

The inverse is also true: insurance plans with a deductible less than or equal to the Minimum Deductible are not HSA eligible. If your insurance has an deductible less than the HSA Minimum Deductible, you cannot contribute to an HSA.

HSA eligible plans must have a deductible higher than the minimum deductible

Note that your deductible generally resets at year end. You can use this to your advantage by “taking a bath” in years where you have a lot of medical coverage. If you hit your deductible in a given year, you might as well schedule additional care for that year as insurance has “kicked in” and is paying for your services. If you are close to hitting your deductible, you may want to pull forward expenses from the subsequent year to hit your deductible in the current year. Once the deductible is met, your only financial liability for insurance is 1) premiums and 2) the out of pocket max (discussed next), often driven by “coinsurance”.

Out of Pocket Maximum

All insurance plans have an out of pocket maximum, or the maximum amount that you can spend on medical care in a year. Note that insurance premiums are NOT included in the out of pocket maximum. Instead, it consists of amounts you pay for 1) deductible and 2) coinsurance.

HSA eligible plans must have an out of pocket maximum less than the HDHP definition

To be HSA eligible, your plan cannot exceed the HDHP definition of Out of Pocket maximum. For some reason, the IRS decided that there needed to be an upper bound on OOP max for plans to be HSA eligible. This is counter intuitive, at least to me, as a high out of pocket max is punitive to the holder and costs them more money. It is exactly those people who need the reduced savings HSA provides.

Add it to the list of things to fix : )

If your insurance plan has an out of pocket maximum that exceeds the HDHP definition for a given year, you cannot contribute to an HSA. Also note the risk of coinsurance. Coinsurance is an amount you owe above the deductible. Often times it is stated as a percentage followed by the out of pocket max, for example, 20% up to $10,000. Assuming you have a deductible of $6,000, your plan looks like this:

  • Deductible, $6000 – amount you pay before insurance pays anything
  • Coinsurance, 20% – after your deductible, percentage of expenses you pay up to your out of pocket max. (For kicks: in this example @ 20% you would require an additional $20k of medical bills, of which you pay $4k in coinsurance, before you reach out of pocket max)/li>
  • Out of Pocket Max, $10000 – maximum amount of deductible and coinsurance you can pay in a year.

HDHP Definitions by Year

Below are HDHP definitions by year for your reference:

2016 2017 2018 2019 2020
Self-Only Min Deductible $1,300 $1,300 $1,350 $1,350 $1,400
Self-Only OOP Max $6,550 $6,550 $6,650 $6,750 $6,900
Family Min Deductible $2,600 $2,600 $2,700 $2,700 $2,800
Family OOP max $13,100 $13,100 $13,300 $13,500 $13,800

Examples for plans that qualify as HDHP

Here are some examples of 2020 insurance plans that qualify as an HDHP and allow you to contribute to an HSA:

  • Self Only: Deductible = $1,400, Coinsurance = 40%, OOP Max = $6,900
  • ✓ Meets minimum deductible; does not exceed out of pocket max.
  • Self Only: Deductible = $3,000, Coinsurance = 10%, OOP Max = $4,000
  • ✓ Exceeds minimum deductible, does not exceed out of pocket max.
  • Self Only: Deductible = $6,700, Coinsurance = 0%, OOP Max = $6,700
  • ✓ Exceeds minimum deductible; does not exceed out of pocket max.
  • Family: Deductible = $2,800, Coinsurance = 25%, OOP Max = $13,800
  • ✓ Meets minimum deductible; does not exceed out of pocket max.
  • Family: Deductible = $7,000, Coinsurance = 60%, OOP Max = $10,000
  • ✓ Exceeds minimum deductible; does not exceed out of pocket max.
  • Family: Deductible = $13,800, Coinsurance = 60%, OOP Max = $13,800
  • ✓ Exceeds minimum deductible; meets out of pocket max.

Examples for plans that don’t qualify as HDHP

Here are some examples of 2020 insurance plans that do not qualify as an HDHP and do not allow you to contribute to an HSA:

  • Self Only: Deductible = $1,350, Coinsurance = 20%, OOP Max = $6,960
  • X Lower than minimum deductible; exceeds out of pocket max.
  • Self Only: Deductible = $0 Coinsurance = 40%, OOP Max = $3,000
  • X Lower than minimum deductible.
  • Self Only: Deductible = $7,000, Coinsurance = 0%, OOP Max = $7,000
  • X Exceeds out of pocket max.
  • Family: Deductible = $2,700, Coinsurance = 25%, OOP Max = $13,900
  • X Lower than minimum deductible; exceeds out of pocket max.
  • Family: Deductible = $1,000, Coinsurance = 100%, OOP Max = $5,000
  • X Lower than minimum deductible.
  • Family: Deductible = $7,000, Coinsurance = 30%, OOP Max = $14,050
  • X Exceeds out of pocket max.

Note: I created TrackHSA.com to track medical expenses you pay using Health Savings Account as you spend up to your deductible or out of pocket max. It provides record keeping to store purchases, upload receipts, and record reimbursements securely online.

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How Family Plans with Individual Deductibles Affect HSA’s

This question was submitted by an HSA Edge reader Mordechai. Feel free to send in your question today to evan@hsaedge.com.

My family insurance plan (parents and children), besides having a total deductible and out of pocket max for the entire plan, has a separate deductible and OOP max for each individual on the plan. Do these numbers effect my eligibility for an HSA?

Family vs. Individual Deductibles

A deductible is an amount you pay out of pocket before insurance begins paying. Most family coverage HSA plans feature an aggregate (“non-embedded”) deductible with one deductible amount for the entire family. Each individual’s medical spending counts toward that deductible, and once met, insurance coverage begins. The only thing that matters is whether the deductible is met, not who spent what towards it. This means that one person can incur enough cost to trigger the deductible, or it can be a shared effort. Either way, it is irrelevant since there is one deductible and it is shared.

Some HSA eligible HDHP insurance plans include individual deductibles in addition to the family deductibles. These plans are quoted as “deductible of $4,000, individual deductible of $2,800”. Each individual’s expenses count towards their individual deductible as well as the family deductible. Once they have met their individual deductible for the year, insurance begins paying expenses for that individual. Once the family deductible is met for the year, insurance begins paying for the entire family.

The benefit of an individual deductible is they are lower than family deductibles, so you can receive full cost coverage sooner. The downside is that coverage only applies to one person until the family deductible is met. In addition, it is another deductible to manage for each person insured.

How Individual Deductibles Work with Health Savings Accounts

When evaluating HDHP plans for HSA eligibility, it is important to keep in mind how individual deductibles come into play. The IRS states that for a plan to be HSA eligible, both the family and individual deductible must be above the minimum annual deductible for HDHPs. If not, the plan is not considered a HDHP and is not HSA eligible. Per IRS form 969:

HSA-rules-individual-deductible

Said another way, if any of the individual deductibles are lower than the HDHP minimum deductible ($2,700 in 2018) the entire plan is not HSA eligible. This is true even if the plan’s “total” or family deductible is above the HDHP minimum. I don’t really like this rule as it is a grey area and confusing to users. That said, I understand its use since parts of the plan have a lower deductible than that required for HSA’s. The problem I have is this may not be apparent when choosing coverage, leading to a situation where someone plans and saves in their HSA, only to find they are not allowed to contribute.

Note: to fulfill the IRS requirement of tracking HSA receipts, please consider my service TrackHSA.com for your Health Savings Account record keeping. You can store purchases, upload receipts, and record reimbursements securely online.

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2018 IRS HSA Contribution Limits

The inflation forecasters at the IRS have done it again and released the 2018 Health Savings Account definitions and contributions limits. Surprisingly, this is a pretty good year for HSA savers in terms of increases to contribution limits, but HDHP definitions have tightened a little which might exclude some health insurance plans. You can see the full document released by the IRS here as IRS Rev. Proc. 2017-37 (PDF).

For 2018 the IRS has increased the amount you can contribute to HSA’s with both Self-Only and Family coverage. However, they have also increased what qualifies as an HDHP by raising the Minimum Deductible.

2018 HSA Contribution Limits

If you have an HDHP and have opened a Health Savings Account, below are the contribution limits for self-only and family coverage for 2018.

2015 2016 2017 2018
Self-Only HSA Contribution Limit $3,350 $3,350 $3,400 $3,450
Family HSA Contribution Limit $6,650 $6,750 $6,750 $6,900*
55+ Additional Contribution Limit +$1,000 +$1,000 +$1,000 +$1,000


*Note: the IRS reduced the 2018 Family Contribution limit from $6,900 to $6,850 on 3/5/18. They then increased it back to $6,900 on April 26th, 2018. What a time to be alive!

2018-HSA-family-coverage-contribution-limit-change-IRS-mistake-apology

As you can see, self-only HSA’s have the contribution limit increased by $50 for 2018. In addition, the family HSA contribution limit has increased by $150 $100 $150 over 2017, which may be a record increase. These are important as this governs the deduction your HSA allows, allowing you to save more in taxes. It is interesting that both self-only and family contribution limits increased in 2018. For the past few years, only one would increase while the other stayed constant, and the pattern would reverse the following year. But perhaps something has changed as both receive an increase in 2018. Not surprisingly, the age 55+ catch up contribution remains flat at an additional $1,000.

2018 HDHP Limits

Below are the 2018 HDHP deductible limits as well as out of pocket maximums that determine whether or not your plan is an High Deductible Health Plan, and thus, whether or not you can contribute to a Health Savings Account.

2015 2016 2017 2018
Self-Only Min Deductible $1,300 $1,300 $1,300 $1,350
Self-Only OOP Max $6,450 $6,550 $6,550 $6,650
Family Min Deductible $2,600 $2,600 $2,600 $2,700
Family OOP max $12,900 $13,100 $13,100 $13,300

2018 sees both the self-only and family minimum deductible tick up by $50 and $100, respectively. This is a negative for HSA’s as the higher required deductible reduces the number of insurance plans that qualify for HSA’s, with some Obamacare plans falling just below this threshold. Offsetting this somewhat is a family out of pocket maximum increases $200 to $13,300, which is positive as this higher maximum includes more health insurance plans as HDHP’s. However, the minimum deductible is weighted more heavily and thus a net negative as more plans are weeded out due to a deductible on the margin than hitting up against the out of pocket maximum.

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