High Deductible Health Plans

I am confused regarding the difference between a consumer directed health plan with a health reimbursement account and a high deductible health plan that can have a health savings account. What sets a CDHP apart from a HDHP?

Please read our advice on Plan Types and Flexibility, and then the section on "how this plan works" in the brochure for a plan of each type. This is a topic you have to study a bit. The key thing to understand is that only a High Deductible plan provides a Health Savings Account. An HSA is your money and you can keep if for the rest of your life as you switch from plan to plan. Some enrollees have built up HSA accounts in the tens of thousands of dollars. CDHP plans don't let you keep their account if you switch plans. There are other differences, but that is the big one.

I have read that High Deductible plans are bad buys for older and less healthy individuals.

Nonsense. These plans are among the best deals in the program. Considering their tax advantages and savings accounts, they rival or beat most other plans. If you know for sure that your routine physician and drug expenses, priced at retail, will be three or four thousand dollars next year, you will probably do better in an HMO or national plan with low copayments. But high expense, in and of itself, is not an argument against High Deductible plans. They have some of the best catastrophic limit guarantees, and if you are otherwise healthy it is a rare event to have a very high cost year.

I am 40, my wife 30, and our son one year old. My son sees the doctor often for routine checkups and common illnesses. On average neither my wife or I visit the doctor more than a few times a year, nor do we take regular prescription medication. I am currently enrolled in a national PPO plans, but feel the premiums are too high for the benefits we use. Is there a particular plan best suited for our situation? I am leaning towards enrolling in a high deductible plan with an HSA. Is this advisable with a young child?

Absolutely. You are the picture postcard candidate for an HDHP plan. Both childhood and adult preventive expenses will be free. Several of these HDHP plans are likely to save $2,000 a year or more for families like yours. If you continue to have low-cost years, within a few years your HSA account will build up to the point that it can pay the deductible, with lots left over, in any year when one of you runs up high expenses.

My wife and I have been in an HDHP plan for years, and have built up a substantial HSA account. Next year we expect a child, and face high expenses as a result. What should we do?

Open Season gives you a great opportunity to save a lot of money. You can change to a plan whose cost sharing for maternity is zero for both hospital and obstetrician. All plans cost you zero for preventive care. So next year your out-of-pocket costs will in all likelihood be close to zero. Meanwhile, your HSA account will remain intact and continue to grow from its investment income. Then, the following year, you can switch back into an HDHP plan and continue to grow your HSA account.

I am turning age 65 and signing up for Medicare Part A next year. How will this affect my Health Savings Account?

The law does not allow new HSA contributions for anyone enrolled in more than one health plan. This includes Medicare Part A, even though you are in an FEHB High Deductible plan. You can keep your plan and your account, and the account can earn income, but you can't make new contributions. You might consider postponing Part A enrollment until you start drawing Social Security benefits (at which time you are required to join Part A). Hospital coverage in all FEHB plans is quite good, and if you join one with no hospital coinsurance, Part A wouldn't benefit you anyway for hospital costs, though it does have superior skilled nursing benefits. Unlike Part B, there is no penalty for delaying Part A enrollment.

Once you have Medicare the law allows you to contribute only to an HRA, not to an HSA. A retired federal employee who is not yet enrolled in Medicare can continue to contribute to a health plan with an HSA until they sign up. However, according to an FEHB FAQ on the OMB site, HSA is an employee benefit and not available to annuitants. Can you clarify this?

OPM is correct. There are many federal employees over the age of 65. If they sign up for Medicare Part A at age 65, or at age 67 or later while still employed (Part A is needed to get SSA benefits), they will no longer be able to contribute to an HSA. An existing HSA can, of course, be kept for life. Employees can contribute to an HSA so long are they have employer insurance and no other insurance. Annuitants, however, are in a different situation. They can keep their HSA, just not add contributions to it.

My wife's employer has an HDHP plan available with an HSA amount, which is funded by a match dollar for dollar for what we contribute. How do our HSA's get funded in the FEHB world?

In FEHB plans the HSA is funded by the employer, but not directly. Instead, the plan’s premium includes the cost of the base HSA contribution, usually around $1500 for a family. We treat it as a premium offset for display purposes, which is why you will see some plans costing around zero, or sometimes less, in the column for no medical costs. When you enroll in the plan the money is deposited in your HSA account on a monthly basis. Download any of the High Deductible plan brochures and read the section on how the plan works. You can make additional voluntary contributions, but there is no employer matching. Also read our information on Plan Types.