Tag Archives: HSA Eligible

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.

Secondary HSA Insurance for Adult Child

This question was sent in by HSA Edge reader Holly. Feel free to send in your own question.

I have an employee (who has Cigna insurance for himself and his family) whose daughter is now employed and has insurance of her own. He would like to leave her on his plan until she turns 26 in October. She would then have her insurance as her primary and dad’s insurance as secondary. Is this allowed?

Parent with Adult Child with Secondary Insurance

Let’s address this from two perspectives: for one, I see no problem for the employee to have his daughter on his health plan. Assuming he has an HDHP, he is eligible to contribute to an HSA using the family contribution limit, even if the daughter has duplicate coverage. He can carry on and has no risk here. This is confirmed by one of my favorite clauses of Form 969:

Self-only HDHP coverage is an HDHP covering only an eligible individual. Family HDHP coverage is an HDHP covering an eligible individual and at least one other individual whether or not that individual is an eligible individual).

Adult Child with Secondary Insurance

As for the daughter, I don’t think anyone is stopping her from having multiple health insurance plans. And it is true that adult children on their parent’s HSA can open their own HSA. That is a great feature and allows them to contribute a lot.

Even if she has HSA eligible insurance, there is a further test. In order to contribute to an HSA, you need to be an eligible individual. Per Form 969:

HSA-what-is-an-eligible-individual

Notice #2 above. Her “other” coverage, whether it is the primary or secondary, almost certainly does not fall into the exceptions listed in Form 969. Thus, with 2 health insurance plans, she would violate the “Other Health Coverage” provision. She would not be an eligible individual with dual coverage, and would be unable to contribute to the HSA during those months with dual coverage.

Over contribution

Note that contribution limit is pro rata by month. For example, if she enrolls for 3/12 months on 1 insurance plan, she earns 3/12 of the contribution for the year. When she joins that second plan for say the remaining 9/12 months, she doesn’t earn contribution limit for those months. But she would still be able to contribute the 3/12 or 25% of her limit.

If this situation existed in 2018 and she made contributions, she likely over contributed, and has until tax day to remove any excess contributions and get her taxes corrected. If it is a current year situation, she can correct it up until tax day next year.

If she is keen on the HSA I would avoid the 2nd plan.

Note: If you want help calculating your HSA contribution limit and filing your taxes, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.

HSA Contribution Limit When Insurance Plan Changes

This question was sent in by HSA Edge reader Oscar. Feel free to email any questions you may have to evan@HSAedge.com

I switched jobs this year. My insurance changed from an HSA to another HSA plan with a different deductible. How does this affect my contribution limit?

Contribution Limit determined by monthly HSA eligibility

The answer to your question is “it depends”, so here is the way to determine this.

Your HSA eligibility is determined on the first day of each month. If you are an eligible individual on the 1st, you “earn” that month’s worth (e.g. 1/12) of the maximum contribution limit. At the end of the year, the sum total of these amounts is your contribution limit for the year.

Remember that an eligible individual is someone who is:

Covered by a HDHP on the first of the month
Has no other health coverage (including FSA’s)
Aren’t enrolled in Medicare
Can’t be claimed as a dependent on someone else’s tax return

IRS Form 969 confirms this:

HSA-what-is-an-eligible-individual

Note that the Last Month Rule can “override” the above logic and increase your contribution limit for the year, based on your eligibility on December 1st.

Calculating contribution limit

Assuming there was no gap in coverage on the first of any month, you will earn that month’s contribution limit as normal. If that means you are an eligible individual during each month of the year, you will earn 12/12 month’s credit and thus 100% of the full contribution limit for the year. This is the maximum contribution afforded to Health Savings Accounts.

On the other hand, if you had a gap in HSA coverage, you might have a reduced contribution limit. For example, if your original HSA coverage ended in August and your new coverage did not begin until October 1st, you would have missed September. That means you lose that 1/12 for September. Assuming you had coverage for the other months in the year, your contribution limit would equal 11/12 x (family/self only limit). Visually, it looks like this:

January – eligible
February – eligible
March – eligible
April – eligible
May – eligible
June – eligible
July – eligible
August – eligible
September – not eligible
October – eligible
November – eligible
December – eligible

For 2018, this equation would be 11/12 x $6,900 family limit = $6,325 for your contribution limit.

Note: If you want help calculating your HSA contribution and filing your taxes, please consider my service EasyForm8889.com. It asks you simple questions and fills out Form 8889 correctly for you in about 10 minutes.