One of the most common misconceptions about health savings account plans is that people can just use their existing health insurance policy if it happens to have a “high deductible.”  In most cases, this is incorrect—the law requires a specially designed policy, technically known as an HDHP (high deductible health plan).  Although it “sounds like” an ordinary policy with a “high” deductible, that is not the case.  The required HDHP policy has special features not found in most policies issued prior to the advent of the HSA. Be sure you have a properly qualified insurance policy!  Our nationwide agency specialize in these policies. 

But why do you need an insurance policy at all? Why couldn't you just have a special savings account, and that's all? When Congress originally designed the predecessor to the HSA in 1996, it did so with the idea that each person or family funding a savings account for medical expenses should always be required to carry insurance as a back-up in the event “catastrophic” medical expenses should strike. This appears to be a wise requirement; otherwise, some individuals would be under the false and mistaken impression that they could “save” their way to financial freedom from the high cost of health insurance.

The insurance policy required by law is, by design, a “catastrophic” type of coverage.  It requires a “high deductible” and allows no “co-pays” to be included in the coverage prior to meeting the deductible (a new exception has been carved out for preventative expenses). This does not mean, however, that the actual insurance policy covers only "big expenses," i.e., those incurred in the hospital. Insurance companies now offer everything from true catastrophic policies providing only in-hospital coverage, to full-blown major medical coverage, and everything in between. The common demoninator shared by all of these policies is a deductible designed to qualify as an HDHP pursuant to IRS regulations.

What all of this means is that you really need to resist the temptation to select one policy over another based solely on the "deductible." What is more important is what is actually "covered" under any particular policy. Carefully review the list of "covered expenses" in a policy, in conjunction with the exclusions and limitations. Be sure the expenses actually covered are sufficient to meet your needs. After all, expenses not actually covered under a policy do not accumulate toward the deductible in the first place. (For more tips on deductible designs, review my special report on deductibles--see link on right hand side.)  

The size of the deductible depends on the number of people actually being insured.  If there is only one adult to be insured, then it is classified as a “single” plan (even if the person is married).  If the policy covers two or more people, it is classified as a “family” plan. 

With both the single and family plans, there is a minimum and a maximum deductible amount established by Congress, implemented by the IRS.  Those numbers change annually. Here is the current list for the tax year 2008:

	Minimum Deductible	Maximum Deductible
Single Plan	1,100	5,600
Family Plan	2,200	11,200

Another important characteristicof an HSA-qualified policy is the out-of-pocket maximum. This includes your deductible and any co-insurance. The total out-of-pocket maximums are the same as the maximum deductibles shown in the chart above. In other words, a single person could have a policy with a 5,600 deductible that then pays 100% of covered expense. Stated another way, that policy would have no co-insurance, so the total out-of-pocket maximum would be equal to the deductible. As another example, a single person could have a deductible of 2,500, followed by co-insurance of 50% of the next 2,000 in expenses. This would yield a total out-of-pocket maximum of 3,500, which is well below the maximum threshold (50% of 2,000 = 1,000 + 2,500 = 3,500).

Important Note About Family Plan Deductible Options

With the family plan HSA policy, the deductible takes on a special feature—it can be a per family deductible or a “per person”deductible, so long as the total family deductible stays within the prescribed guidelines. Orignally, all HSA family policies were required to be per family, but the IRS loosened that requirement shortly after the HSA was instituted in 2004. (Tip: A family plan with individual deductibles can save 15% to 20% compared to an otherwise identical policy with a "per family" deductible.)   

Why a "big" deductible is really "no big deal"

For an enlightening discussion regarding deductibles and their use in health insurance, please take a moment to read my Report on deductibles. You'll find a link on the right hand side of thise page. I wrote this particular article in an effort to help people better understand what deductibles really are, what their function is, and why it makes a lot of sense to buy larger deductibles (and save the difference!),

What type of expenses are actually covered under the policy?

That is the main question you should be asking of any health insurance policy--HSA qualified or otherwise. Compare covered expenses, not deductibles! A deductible is simply a tool used by an actuary to modify the premiums. It makes much more sense to buy a larger deductible with a more comprehensive policy than to buy a lower deductible on a limited benefit policy.

Believe it or not, there really are NO IRS regulations as to what expenses must actually be covered under a policy to qualify as an HSA eligible plan. This gives insurance companies wide latitutde in designing policies that are HSA-qualified. Consequently, you can now find a wide variety of HSA-qualified policies on the market. Prices for the same policy design can fluctuate wildly from market to market. For example, a family living in Des Moines could be paying $245 a month for the same policy that would cost them $845 if they lived in Miami. So it pays to shop around, and it helps to live in an area with generally lower insurance costs.

What about underwriting and “pre-existing” conditions?

Unless you are applying for employer-sponsored coverage, i.e., group insurance, your insurance policy will be individually underwritten.  As such, issuance of coverage is subject to underwriting on a case-by-case basis.  Premiums and ultimate offers are determined by the age, sex, location, and health factors of each person or family to be insured. You will not get special underwriting consideration just because the policy has a high deductible-that has already been accounted for in the lower premiums. So if you have serious pre-existing conditions that you need coverage for, it may be difficult to secure coverage..  Depending on the laws in your state, coverage for certain conditions may be excluded or modified, a higher premium may be charged, or coverage could be completely denied.

Usually, there is no physical exam required; however, each company reserves the right to request a physical exam (typically a “paramed” exam) should they feel it necessary as a prerequisite to assessing the risk.  In most cases, underwriting consists simply of the completion of an application being forwarded to the company for review. 

Today, more so than ever, insurance companies are taking a hard-line approach to keeping future expenses in line. In general, therefore, you should expect that most "pre-existing" conditions will be excluded from coverage, at least for a minimum period of time. Example: Existing hernia--likely to have an exclusionary rider. EXCEPTION: Exclusionary riders are prohibited by law in some states. In those states, an insurance company may be more inclined to simply DENY the application altogether.