You have to decide whether to renew your high deductible health plan during this year’s open season. Use these four factors to decide whether to renew your high deductible health plan:
- Your expected health care needs next year,
- The premium savings of a high deductible plan,
- Your anticipated Health Savings Account (HSA) contributions, and
- Your current HSA balance.
The interplay of these factors can help you decide whether to renew your high deductible plan.
Background of High Deductible Health Plans
High deductible health plans make you pay for the health care you use until you’ve met the annual deductible. A deductible is a fixed dollar amount specified by the plan. You must meet the deductible before the plan begins to cover health care expenses. In most cases you must meet the deductible each year.
A plan with a $3,000 deductible means you will pay for the first $3,000 of the medical expenses you use with no help from the insurer. The plan will start paying a share of the expenses you incur after you’ve met the deductible. If you fill a prescription, you might pay a flat $15 (a “copay’) and the plan will pay the rest of the prescription’s cost. If you need surgery and you spend the night in the hospital, you may pay 20 percent of the hospital bill (“co-insurance”) and the plan will pay the other 80 percent.
High deductible plans have a hard cap on the amount of money you spend out-of-pocket each year. The 2017 out-of-pocket maximums are:
• $6,550 for self-only coverage, and
• $13,100 for family coverage.
The out-of-pocket cap includes the deductible amount and the copays and coinsurance you will continue to pay after you reach the deductible. It does not include your premiums.
If you hit your out-of-pocket maximum for the year, your insurance will pick up 100 percent of costs afterwards.
You can contribute to a Health Savings Account (HSA) to help pay your expenses up to the out-of-pocket maximum.
Contributions to HSAs are pretax, so they lower your income tax liability. You can carry your HSA balance from year to year and you can invest the money for tax-free growth.
To be eligible to contribute to a HSA, the health plan must have a deductible of at least $1,300 for individual coverage and $2,600 for family coverage.
The maximum HSA contribution for 2017 is $3,400 for individuals and $6,750 for family coverage. If you are over 55, you may add an extra $1,000/year to your account (like a catch-up contribution to an IRA or 401k plan).
High Deductible Plan Renewal Considerations
The most important consideration is your expected health needs next year.
A high deductible plan is not as attractive the more health care you use. You are responsible for the cost of these services until you’ve met your deductible.
It may be a better option to enroll in a plan with a lower deductible and a higher premium if you expect high medical expenses. Moreover, if you don’t have a balance in your HSA or you don’t expect to fund the HSA in 2017 then it may not make sense to renew your high-deductible plan.
Determine the annual premium savings compared to the plan with the closest lower deductible.
The monthly premium for a high deductible plan is lower than a comparable plan with a lower deductible.
High deductible plans become more attractive the greater the premium savings because you can contribute the premium savings to your HSA.
High deductible plans also make more sense if you can contribute the annual maximum to your HSA ($3,400 individual / $6,750 family). These are not use or lose dollars. You keep building them year after year.
Renew your high deductible plan if you have the deductible amount in your HSA already.
I don’t see how it would make sense to buy a lower deductible plan with a higher premium if you have your plan’s deductible in your HSA. Continue to fund your HSA with the premium savings and renew your high deductible plan.
My Renewal Decision
I have used a high deductible health plan for the last two years (2015 and 2016). I contributed the annual maximum to my HSA.
In early 2016 I had cataract surgery in my left eye that cost me $2,700. I used my HSA dollars to pay these expenses.
My 2017 renewal decision involved knowing that I will need to have surgery in the right eye. I just don’t know when.
I am waiting to do the surgery mainly because my vision is fine. And, more important, there are no risk-free interactions with our health care system. So I didn’t want to rush into it.
But I could potentially be on the hook for another $2,700 (the cost of the right eye) in 2017 assuming no other health issues.
I shopped for a high deductible plan with a lower deductible. My current plan for 2017 has a $5,000 deductible. The next lower deductible plan is one with a $2,000 deductible.
I could buy a plan with a $500 deductible, but I wouldn’t be able to use a HSA because the deductible must be $1,300 or more to qualify for a HSA.
The premium savings from my current plan are $1,044/year for the $2,000 deductible plan and $2,832/year for the $500 deductible plan.
If I pay $1,044 more in premiums for the $2,000 deductible plan, I will save $700 if I have the surgery ($2,700 surgery costs – $2,000 deductible). I’ll still have to pay the $2,000. This tradeoff (pay $1,044 and save $700) is not in my favor.
Likewise, if I pay $2,832 more in premiums for the $500 deductible plan, I will save $2,200 if I have the surgery ($2,700 surgery costs – $500 deductible). This trade-off (pay $2,832 and save $2,200) is worse than the plan with a $2,000 deductible. Plus, I wouldn’t be able to contribute to my HSA for future use. This didn’t seem the way to go. I would be over paying for coverage that I may not need.
I decided to buy the plan with the $5,000 deductible and to contribute the maximum to the HSA. If I need the surgery then I won’t be out any more money than if I had bought the lower deductible plan. But I if I don’t need the surgery then I am better off with a fatter HSA at the end of 2017.
In sum, decide whether to renew your policy by balancing your expected health care needs with the premium savings and the amount you can contribute to your HSA and your current HSA balance.