Using the HDHP
The HDHP is simply a standard insurance plan with a higher deductible. To comply with the HSA law, the deductible must apply to both network and non-network care. In contrast, many managed care plans don’t apply a deductible to care you obtain within your plan’s provider network.
Exactly what your plan does cover depends on your employer, your insurer, and the choices you make from the plans available to you. For example, some plans may pay for fertility treatments, others may not; some plans may pay for bariatric (weight-loss) surgery, others may not. There are many variations among HDHPs, so don’t assume your next plan covers the same things as your last. Be particularly sure you understand your new plan’s provisions. These can be found in your plan’s summary of benefits that you receive at the time of enrollment.
This section explains the types of coverage that a participant may have along with an HSA/HDHP. If a participant has coverage in addition to the HDHP that is not permitted, then the participant may not contribute to the HSA. In general, the rules exclude many types of coverage for first-dollar medical expenses.
Permitted Coverage Alongside an HDHP Permitted coverage is the coverage an individual may maintain, in addition to an HDHP, without losing eligibility for an HSA, even though the coverage may provide first-dollar coverage for certain medical
expenses.
Coverage that is permitted includes:
Worker’s compensation insurance;
•
Indemnity plans that pay a fixed amount per
•
day or other period of hospitalization;
Coverage limited to a specific disease or
•
illness (e.g. cancer, diabetes);
Accident, disability or auto insurance;
•
Tort liability payments; and
•
Insurance for vision care, dental care, or
•
long-term care.
A few important cautions:
Permitted hospitalization indemnity
•
plans mean just that— you must have been admitted to the hospital to qualify for a benefit. An indemnity plan is one that pays health insurance benefits in the form of cash payments rather than services. Some HSA/
HDHP vendors may call these plans “gap”
plans or “HSA protector” policies, because one function of such plans is to cover you against a large bill before you meet your plan’s deductible. This can serve to protect your HSA dollars, or to help pay for hospital expenses before you have had time to build your account balance.
Indemnity or “gap” plans can’t cover outpatient hospital services such as medical tests that you might have in a hospital
or hospital-related facility without being admitted to the hospital. In other words, the indemnity plan is not intended to cover relatively small expenses just because they are incurred in the hospital rather than in a freestanding facility.
Prescription or other discount
•
programs. Your plan may provide you with a membership card that qualifies you for a discount on prescription drugs or other health care goods or services.
Such programs are permitted along with participation in an HSA/HDHP, even though they may apply to the very first eligible expenses you incur (that is, they are not subject to a deductible). They are permitted because they are not insurance.
Preventive care and the HSA/HDHP.
•
Generally, an HDHP may not provide benefits for any year until the deductible has been met. But preventive care has a special role in the health care system. Many plans and providers believe their first job is to prevent disease from developing, and, if a medical condition does develop, to diagnose it early enough that you have a chance for full recovery.
To accommodate the importance of preventive care, there are exceptions (called, in legal terms, a safe harbor) for
preventive care. So, an HDHP may provide first-dollar coverage for preventive care or apply a lower deductible. Chapter 1: Health Savings Accounts—A New Approach provided a list of the basic categories of treatments that are considered preventive care for the purposes of HSAs/HDHPs. Some 50 types of screening services are also included in the federal definition of preventive care (see Table 4.1, at the end of this chapter).
Screening services are medical tests designed to detect treatable diseases or conditions.
It is very important to remember that while an HDHP may offer coverage for preventive care benefits before the deductible is
satisfied, it is not required to do so. There is no requirement that an HDHP cover preventive care on more favorable terms than available for other benefits, or that it offer any benefits for preventive care at all.
Read your plan information carefully to fully understand how preventive care is treated.
State law and preventive care.
• Some
states have laws requiring that insurers provide certain types of health care
considered preventive care without imposing a deductible that might apply to other care paid for under the plan. Such laws are called benefit mandates, and the benefits required under these laws are called mandated
benefits. The idea behind requiring favorable treatment for preventive care is that if some people have to pay for such care with their own money (rather than benefiting from insurance coverage) they will forego care that could be important in diagnosing and/
or preventing illnesses or diseases. Archer MSAs (see Introduction) relied on state law to determine the types of care that could be provided without a deductible if required by state law. Unlike Archer MSAs, the HSA law uses a federal definition of preventive care. Therefore, individuals and some employers in states whose laws require first-dollar coverage for benefits that do not fit the federal definition will be unable to participate in HSA/HDHPs (see further discussion in Chapter 8: The HSA Law). In such states, only those employers offering self-insured plans will be able to adopt HSAs/HDHPs. Self-insured plans are those under which the employer pays for medical claims as they arise rather than contracting for coverage from an insurer. Several states are in the process of changing state law to allow for HSAs by exempting HSA/HDHP plans from state benefit mandates. Please see Chapter 8: The HSA Law for more information.
Coverage that is Not Permitted for HSA Purposes Permitted coverage alone is not
•
an HDHP. If a plan provides primarily permitted coverage, and there is no general medical coverage, it is not an HDHP.
Without an HDHP, the holder may not establish an HSA.
Using other tax-advantaged health
•
plans with your HSA/HDHP. The whole point of the consumer-driven health care revolution—and HSAs/HDHPs in particular—
is to incentivize and empower the consumer to be responsible for health care spending.
You cannot enroll in traditional coverage and still open and contribute to an HSA. Many people who are enrolled in traditional plans can use FSAs and HRAs to help with some of this first-dollar spending by using these accounts to pay for deductibles, co-payments and coinsurance. If you want to enroll in an HSA/HDHP, you can still participate in an FSA or HRA, but the FSA or HRA has to be more restrictive than if you were enrolled in a traditional plan (for more on this, see Chapter 2: Who Would Want an HSA?).
Student coverage.
• A student in college
or a graduate in a professional program may be ineligible to participate in a parent’s plan because the student has reached the plan’s age limit or is not a full-time student.
Some higher education institutions make
comprehensive medical coverage available to such students (for more on such plans, see Chapter 7: Your HSA/HDHP and Everyday Health Care Challenges).
This type of coverage may meet the standards for an HDHP. If such coverage is available, a student can contribute to an HSA, assuming he or she is otherwise eligible. If the coverage does not meet the HDHP standards, the student can decline the higher education institution’s coverage and enroll in a plan that does meet the criteria. Make sure to evaluate the dependent status of your student before setting up an HSA for him or her.
Medicare.
• Once enrolled in Medicare (which is not an HDHP), you are no longer eligible to make contributions to an HSA (see Chapter 7 for more detail). If you choose not to enroll in Medicare, you may continue to make HSA contributions, including catch-up contributions, as long as you continue to have an HDHP. At age 65 (the usual eligibility age for Medicare), a person can spend balances accumulated in the HSA on non-qualified expenses with no penalty, though the expenditures will be subject to income tax.
Prescription drug coverage.
• First-dollar
coverage subject to co-payments, such as $20 co-payment per prescription, is not permitted (see further discussion in Chapter 1, where
Using the HSA
You can spend the funds in your HSA on qualified
medical goods and services or on certain limited types of insurance coverage.
Medical Expenses
You can use your HSA on a wide range of medical expenses—generally the same ones that you can deduct if you are eligible to deduct medical expenses on your individual income tax return (see Table 4.2). These expenses may not necessarily be covered under your HDHP. Ultimately, it is your choice how you spend your HSA dollars.
Insurance Premiums That You Can Pay from the HSA;
Those You Can’t
In general, you can’t use your HSA to pay insurance premiums. However, there are certain exceptions (see also Table 4.3, at the end of this chapter, and Chapter 7: Your HSA/HDHP and Everyday Health Care Challenges). Once you are 65 and eligible for Medicare, you can pay Medicare premiums (A, B, C &
D), out-of-pocket expenses that Medicare doesn’t pay, and Medicare HMO premiums. You can’t pay Medigap premiums out of your HSA. Medigap policies are policies individuals can buy to cover out-of-pocket costs not covered by Medicare (see Chapter 7 for more detail).
If you are age 65 or older and still working, you can pay your share of premiums for employer-based coverage out
of your HSA, though you can’t pay for these premiums before age 65. If you are age 65 or older and not working, you can also pay your share of any premiums your employer requires you to pay for employer-sponsored retiree health care coverage.
If you are unemployed, you can pay COBRA premiums if you are eligible for COBRA benefits. You may become eligible for COBRA benefits upon retirement at any age (see Chapter 7).
You may also use your HSA to pay premiums for qualified long-term care insurance. To be qualified, a long-term care insurance plan must meet criteria set out in federal law.
Restrictions Your HSA Trustee or Custodian May Impose
You, not the trustee or custodian of your HSA, are responsible for showing you have spent your HSA in accordance with the law’s requirements. However, the trustee or custodian can limit your access to HSA distributions in certain specified ways. For example, the trustee may prohibit distributions for amounts less than
$50 or may only allow a certain number of distributions per month. Different trustees or custodians may
impose different restrictions—or even no restrictions at all—on distributions. So if easy access to your account is important to you, you need to consider this feature when shopping for an HSA (see also Chapter 1: Health Savings Accounts—A New Approach and Chapter 3:
Knowing Who Can Provide You Treatment In general, the HSA/HDHP combination is the most flexible type of health care arrangement available. The money in the HSA is yours to spend and save. This means you can choose to obtain treatment from virtually any legal provider of qualified medical services, whether they are in or out of your network, as long as you are willing to pay with your HSA.
Services Not Covered under Your Plan
You can use your HSA balance to pay for health care that is not offered under your health plan, within the limits of qualified government expenses (see Table 4.2, end of this chapter). Not only does this include many dental and vision expenses, but many other less common expenses, such as removing lead-based paint in your residence.
Removing lead-based paint is an expenditure that would generally not be covered by a health insurance plan. It will not be credited toward your deductible. See Table 4.2 at the end of this chapter for a list of expenses you can use your HSA to cover.
Services Covered under Your Plan
Alternatively, you could use your HSA only for health care goods and services that are covered under your plan. Then, you would generally have two choices: you could consult providers who participate in your plan’s network, or you could consult non-network providers for some or all of your care.
Using network providers. Health care providers—
doctors, hospitals and other health care facilities—
participating in your plan’s network have agreed to give members of your plan a discount from their usual charges. They hope the discount will attract plan members to their practice or facility.
Depending on your plan’s rules, to get the best benefits your plan offers you may also need to use a gatekeeper physician and obtain referrals and authorization for certain medical services or procedures. A gatekeeper physician is usually a primary care doctor, pediatrician, or internist responsible for overseeing and coordinating all aspects of a patient’s care. A referral is a recommendation of a medical professional. In many managed care plans, a referral may be necessary to see any practitioner or specialist other than your gatekeeper physician, if you want the service to be covered. An authorization is the plan’s permission to proceed with a medical or surgical procedure. Like a referral, authorization may be required if you want the plan to pay for the procedure.
Conversely, without authorization, the plan may refuse to pay for the procedure even if the procedure would otherwise be covered. A managed care plan is a health plan that limits costs by limiting the reimbursement levels paid to providers by monitoring health care utilization of participants, or both.
If you use your HSA only for services covered under your plan and consult only providers who participate in your plan’s network, all your expenditures under the HSA will generally count toward your deductible and
toward your plan’s out-of-pocket limits.
Example: Maria’s doctor charges $150 for an annual visit to check on her ongoing thyroid treatment. As a provider in her plan’s network, her doctor has agreed to accept $75 from her plan for each such visit. If she has not yet met her deductible at the time of the visit, she pays $75 out of her HSA. This amount is also credited toward her plan’s annual
out-of-pocket limit, or limit on how much she can be expected to spend in a given year before the plan takes over entirely.
Even if you use network providers, you still need to understand exactly how your plan expects you to obtain care. Your plan may require you to obtain a referral to see a specialist or authorization for a medical procedure even if the specialist or the doctor recommending the procedure participates in your plan. If you fail to obtain a referral or authorization when one is required, your plan may charge you a higher co-payment, coinsurance rate, or a flat-dollar penalty. Neither the excess co-payment or coinsurance you may be required to pay, nor the penalty, will count toward your HDHP’s out-of-pocket limit for the year. As a result, failure to know and follow your plan’s rules can cost you money.
Using non-network providers
Suppose Maria decides to consult a doctor who does not participate in her network. As a non-network provider, the doctor will charge her $150 for this visit. Since she has not met her deductible, she decides to pay the $150 out of her HSA. If her plan has a single limit for network
and non-network care, the $150 will also be credited toward her plan’s annual out-of-pocket limit.
However, the HSA law permits the plan to have a separate limit for non-network care. If her plan has a separate limit for non-network care, the $150 will be credited toward that limit. In this example, if she had met her deductible for the year, the plan would pay whatever it provides for non-network care—commonly 50 percent of the allowable charge. In this example, the plan would pay $75, and the $75 Maria paid would be credited toward her out-of-pocket limit for the year.
This is a somewhat simplified example because it does not account for another type of discount health care plans often apply. If your provider has not contracted with your plan, and thus does not offer you a network discount, the plan is not obligated to accept the provider’s charges.
Plans typically count only what they consider usual, customary and reasonable (UCR) charges toward the participant’s deductible and/or out-of-pocket limits. This is the term for an insurance company’s estimate of “the going rate” to be paid in your geographical area for a given medical service or procedure.
Suppose Maria’s insurance company decides that usual and customary charges for a thyroid check-up should be $130. It would then pay half of this reduced amount, and she would pay the other half. In addition, however, the doctor may charge her the difference between his
original charge and her insurance company’s estimate of usual and customary charges, in this case, $20. If this happens, her cost for the visit would be $85. The doctor still gets paid his usual charge of $150—$85 from Maria and $65 from her insurance company. However, because her insurance company has not allowed the full amount of her doctor’s charges to be considered, only $65 of the $85 she paid is credited toward her out-of-pocket limit for the year.
How You Pay
The basic process of paying for care is much the same as it was under any health care coverage plan you may have had in the past. We start by outlining the payment process in a traditional plan—including the parts of the process that happen away from your doctor’s or other provider’s office—then point out how the process changes in an HSA/HDHP plan.
In a Traditional Plan
In a traditional plan, you typically pay for care in one of two ways, depending on whether the doctor or other provider participates in your plan’s network.
In-network care. If the provider—suppose
•
it’s your family doctor—participates in your network, you typically present your health care plan membership card and pay the required co-payment or coinsurance at the time of the visit. The provider files your claim with the insurance company and gets paid the contractually agreed or re-priced