HSA eligibility when with employer plans

Question

My employer offers two health plans:

1. PPO with optional FSA
2. HDHP (high deductible health plan) with an HSA option.

The plans have identical coverage, the difference is in the premiums, deductibles, and oop (out-of-pocket) maxes. The PPO has a deductable of 2k individual, 4k family and an oop max of 4k individual and 8k family.

I am in the process of running the numbers, but so far it is looking like I am going with the PPO plan, after having been on some form of HDHP for the last decade.

If I do go with the PPO plan, am I allowed to open my own HSA (like the one with Fidelity: https://www.fidelity.com/go/hsa/why-hsa for example), since the deductable and OOP max is within the IRS rules for HSA eligibility? Here is the IRS publication: https://www.irs.gov/publications/p969

Answer 1

In order to be considered an HSA-compatible High Deductible Health Plan, there are very specific features that a health plan needs to have (or not have). Since you have two options, and only one is labeled as “HDHP with HSA option,” it is most likely that the other plan is not compatible with HSA eligibility. The feature that usually trips up “PPO” plans are discounted copays before you hit your deductible. As you can see from the comparison images you provided, your PPO plan does indeed have copays which is why it isn't HSA compatibile. But if you still aren’t sure, ask your employer (or the health insurance company), as they should be able to tell you if the plan is an HSA-compatible HDHP.

If you currently have money in an HSA, you won’t lose that money if you become HSA ineligible. You would still be able to use that money on medical expenses until it is gone. You would just be unable to contribute new money to your HSA.

Answer 2

It's not your root question, but be sure not to ignore the HSA match you get with the HDHP. Yes, you might pay an additional $1,000 in deductibles over the year, but you are eligible for a $500 match, plus your contributions are tax-free. So depending on the difference in premiums, the HDHP still might be a better deal, since you've only got $500 to make up in premium savings and/or cost differences.

I typically plan for using 50% of the deductible when comparing plans - it's rare that anyone in my family uses that much health care, but we are pretty healthy. So this plan would be a wash from a deductible standpoint (I have a $500 higher deductible but would get a "free" $500 in my HSA), and the difference in premiums would be the deciding factor.

It seems like the biggest difference may be in the office visits. The PPO has a copay (but does not count toward your deductible) while the HDHP does not pay until you've hit your deductible. Think about how often you go to the doctor (for non-preventative care) and see if that's a big factor for you.