Tag Archives: OOP Max

Out of Pocket Maximum Too High For HSA?

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

Is it possible for maximum out of pocket expenses to be too high to qualify for a Health Savings Account? Mine is $6800. My deductible is the same. This is for a single person.

Yes, it is possible for an insurance plan not to qualify as an HDHP due to to an out of pocket max being too high.

An insurance plan must be considered a High Deductible Health Plan (HDHP) to be HSA eligible. Each year, the IRS publishes their HDHP definitions of what qualifies. The requirements are pretty consistent although amounts vary from year to year due to inflation calculations. You must meet all of the requirements to be HSA eligible, and they traditionally look at the following:

  1. Minimum Deductible – your plan’s deductible must be greater than this amount
  2. Out of Pocket Max – your plan’s out of pocket maximum (the total amount you can spend in 1 year on your plan) must be less than this amount

Once you compare your health insurance to these numbers for a given year, you determine if your insurance is categorized as an HDHP, and if so you are able to open and contribute to a Health Savings Account.

For 2017, that out of pocket maximum is $6,550, so if your plan has an out of pocket max of $6800, it likely does not qualify. I don’t know why the government does this and excludes certain plans. In my mind, they have not adequately adjusted the HDHP definitions in line with out of control insurance costs. In addition, plans offered on the “marketplace” by the Affordable Care Act systematically priced plans out of HSA eligibility using your exact example, setting out of pocket maximums just above the HDHP definition. Hopefully the government rights the ship and opens up HSA’s to more people.

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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

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 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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How to Select a HSA Health Insurance Plan

When searching for health insurance plans, it can be difficult to understand exactly what you are getting.  Besides the medical jargon, there are a host of acronyms that aren’t clearly defined.  These combine to make this important decision all the more difficult.

Before evaluating specific plans, broadly consider your finances and medical situation to determine your needs and constraints.  What is your goal with coverage?  What is your budget for health insurance per month?  How much of a deductible can you handle each year?  How strong is your emergency fund?  Do you have any medical conditions that require frequent visits?  Do you have a family doctor that you would like to continue visiting?

HMO vs. PPO – Understand the Plan’s Network
An insurer has a unique network of doctors, care centers and hospitals that you can visit.  This is considered in-network care and is significantly cheaper than any other alternative.  Basically, you want to receive care in-network if possible. Out of network care exists outside of this realm and is generally more expensive.

The best way to evaluate the insurer’s network – and how it fits your location and needs – is through their website.  You can see what offices are close by and how extensive the coverage is.

This is a good time for a primer on HMO’s vs. PPO’s.  Health Maintenance Organizations (HMO’s) generally assign a designated primary care physician who you visit first.  That physician then directs your care and schedules other services as needed, most likely in-network.  With HMO’s there may be no deductible for in-network care but monthly premiums are generally the highest.  HMO networks are smaller and more local so choices may be limited.  However, the care is coordinated and the costs for procedures may be lower.

Preferred Provider Organizations (PPO’s) have a vast network of preferred medical providers who you can visit.  Generally, they will require a copay for each visit and any additional costs will be at a very favorable rate as you are in network.  Moreover, if you venture out of network, your PPO may reimburse you for a percentage of those costs.  Unlike an HMO, no referral is needed before seeing a specialist, which allows for more flexibility in this type of plan.

A Health Savings Account is separate from a PPO or HMO; it is merely a qualifier that lets you open the tax advantaged savings account.  Thus, you may have an HSA with either an HMO or PPO.

Evaluating Plan Characteristics
Below is a run down of the main qualifications you will encounter in choosing a health insurance plan.  While certain factors weigh more heavily, it is the mix – combined with your health care needs – that enables you to choose the best plan for you.

Here is what it looks like comparing quotes on eHealthInsurance.com:

 

EHealthInsurance Quotes

Explanations:

  • Premium – the amount you pay each month to maintain your insurance.  This amount is paid regardless of services received.
  • Deductible – the amount you must pay before the provider pays for any services.  Note that during this time, you pay favorable, reduced rates for in-network care.  After incurring costs equal to your deductible, your provider will pay part (coinsurance) or all of the additional charges.
  • Coinsurance – a % of charges you must pay after the deductible kicks in, but before our OOP max.  Think of it as a reduced rate for coverage in this range – neither party is paying 100%. Prior to reaching your deductible, you paid 100% of the charges. After surpassing your out of pocket max, your insurance pays 100%. In between, you both pay coinsurance, which is quoted in terms of your share.
  • Out of Pocket (OOP) Max – your maximum financial liability for the year.  Note that this does not include monthly premiums.  Generally, one will reach their OOP max by incurring charges over their deductible and straight past their coinsurance period (if any). Your OOP max may also called the co-pay max.
  • Office Visit – how much an office visit to an in-network doctor will cost.  Sometimes, there is no benefit; you simply pay what the provider charges.
  • Co-Pay – the amount that you must pay out of pocket when purchasing services (visit) or prescription drugs.

Hopefully this makes plan selection easier for you.  Drop me an email or leave a comment if you have any questions.