And your health insurance is not your health savings account (HSA).
The inspiration for what we write about usually comes out of conversations we have in the real world with individuals, employees, and benefits/HR administrators at various companies. One source of confusion is the relationship between the HSA and health insurance. There is a definite link between the two, but they are indeed two separate offerings.
Your health insurance is a “product” that is made available to you via a Health Insurance Carrier (e.g., Aetna, Blue Cross Blue Shield, Anthem, Kaiser, etc.). If you are an individual, you can obtain health insurance via a private or public health insurance exchange. If you are an employer, you typically are working with a benefits/health insurance broker to help you get access to insurance. And if you are an employee, you have the option to take whatever health insurance is provided to you by your employer. Alternatively – you can decline said coverage and obtain it as an individual on the exchanges (mentioned above).
With health insurance, an important concept to keep in mind is the deductible. We talked about this in a previous post, but the deductible is typically what you have to pay before your health insurance provider will begin paying a portion or all of the costs.
The definition of a High Deductible Health Plan (HDHP) is as follows:
- Individual Coverage: $1,300
- Family Coverage: $2,600 (this is defined as a health plan covering more than just yourself)
A low deductible plan is anything considered below the thresholds listed above. More and more employers are offering HDHPs because of rising annual premiums on traditional low deductible plans. As this continues to occur, employers and their employees increasingly are feeling the cost pressures associated with it. This is resulting in a multitude of issues. Some of these include:
- Employers not able to re-invest back into their companies for growth (e.g., hiring more people) due to lower profits
- Employees taking home less on a paycheck by paycheck basis resulting in lower purchasing power, especially since the increase in gross wages are not keeping up with the rise in annual health premiums
The concept behind the HDHP is that if employees/consumers bear the initial burden of health costs (the first set of costs up to the deductible), then they may think twice about unnecessarily going to seek health or medical care. Keep in mind that people on an HDHP do not pay out of pocket for preventative care and services. This is an important, yet overlooked element of the HDHP. The idea behind this part of the plan is that if everyone goes to the doctor for routine care, they will be better off in the long-run. Sometimes, catastrophes and emergencies do happen. And while these situations are unexpected and unwelcomed, even the HDHP has an annual out-of-pocket maximum so consumers are protected at some level. We are not saying that level is affordable for everyone, rather simply stating that there is an inherent cap associated with the plans.
Health Savings Accounts
As an employer, once you’ve selected the health insurance plans to offer to your employees, if the plan is a qualifying HDHP, then you can offer your employees a Health Savings Account. Employees typically take whatever HSA is provided to them by their employer. However, if your employer doesn’t offer you an HSA, you (the employee) can select whichever HSA provider you want to work with. Additionally, individuals who obtain coverage via a qualifying HDHP can also work with any HSA provider.
Link Between the Two
There is absolutely no requirement that you get your HSA through your Health Insurance Carrier. As a matter of fact, most of the time it is not even available via the Carrier. HSA accounts are separate from the health insurance plan. The only link between the two is that to open an HSA account and fund it – you must have active coverage by a qualifying HDHP. That’s it. Further, if you have an HSA with a balance but you switched health insurance so that you no longer have a qualifying HDHP, you can’t make any new contributions into your HSA account but you can still take distributions out of it so long as it is used for qualified medical expenses.
High deductible health plans are not for everyone. Some people have the luxury of choice. Others do not. However, if you find yourself having chosen (or given) the High Deductible Health Plan, you should strongly consider adding on a Health Savings Account.