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By Dennis Jarvis
Well into the mid-2000’s (is there some snazzy way to describe that decade), HSA plans on the California health insurance market were pretty tough to beat. The market place broke down into 3 main categories: HMO’s, traditional PPO’s, and HSA plans. HMO’s were on their fast ascent into inaffordability. PPO’s were generally richer even for high deductible plans with office visits and medication broken out separately which also priced them quite a bit above California HSA compatible plans. In this scenario, the HSA plans became very competitive when comparing the annual premium difference versus either HMO or PPO plans on the market. Even with office visits and RX coverage being subject to the main deductible, you couldn’t justify going anywhere else for anyone in their 30’s or older and this was especially true for older Californians or for families. This comparison worked whether a person funded the HSA account for the tax benefit or not. That’s no longer the case. Let’s take a look at the current HSA versus PPO (since HMO’s have completely priced themselves out of the market) and see if it make sense and when.
First, a quick introduction to the core components of the California HSA insurance plan. Essentially, there are two pieces. The first is just a straight high deductible insurance plan. Keep in mind that just having a high deductible does not make a plan HSA qualified. There are certain parameters for the deductibles and max amounts and also requirements for benefits (basically preventative) that are not subject to the main deductible. That’s the insurance part of the HSA and most “HSA” plans are PPO plans by design. In the quote engine, they may say HSA as a type for California health plans but the underlying plan uses the PPO network. The HSA type deals with our second piece. If a plan is listed as HSA, it means that the insurance plans allows you to take advantage of the tax benefits associated with the HSA law. In a nutshell (we’ve covered HSA plans in detail with other articles), you’re able to fund into a separate tax-favored account up to a certain amount each year (depending on family makeup and when the the HSA plan starts) into this account on a pre-tax basis. You can then use these funds for qualified medical and dental expenses (but not health insurance premium) with pre-tax money. If you don’t use the money, it rolls over year to year and investment/interest can be tax-deferred. The theory is that you take the premium savings associated with a high deductible plan and fund the HSA account for the smaller bills. Sounds great and it worked well for about a decade. That’s the ideal but let’s look at the what we hear daily.
The HSA health plan is now priced the same or slightly more expensive than similar deductibles for California PPO health insurance plans. Some PPO plans now have lower premiums with comparable core benefit plus some level of office copays and RX coverage up front. Here’s the rub. The HSA only makes sense in those situations if you fully fund the HSA account. Easier said than done. For an individual, this is about $3K and double that for more than 1 family member. This is in addition to the health insurance premium. That money is also somewhat locked away since there’s a penalty for in-eligible withdrawals. Why does this matter? Let’s say you have a 30% tax bracket. $3K at 30% is about $1000 in real savings per year. You divide that by 12 months and it’s about $80 in real monthly savings. If you subtract the $80 from your HSA insurance plan premium, it starts to look really attractive. Even more so for a family situation. We all have good intentions and we all plan to fully fund the HSA accounts but plans change…especially in this economic environment. If you feel that funding the HSA account will be a struggle in spite of your best intentions then traditional PPO plans might be the better option. We’re happy to look at your particular situation (age, zip code, etc) and see which approach to California health insurance will work best in your favor.
About the Author: Dennis Jarvis is a licensed California health insurance broker with extensive knowledge of the Individual and Small Group health market in California. Individual California health insurance
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