Can an HSA health plan be good for someone with high healthcare costs?
- Claire Baker
- Feb 14
- 2 min read
Conventional wisdom says that HSA plans are good for healthy people who don’t go to the doctor. But did you know they can also be good for people who go to the doctor A LOT?
Quick crash course:
💡A health savings account (HSA) is an interest-bearing bank account where you can put pre-tax dollars in and use them for healthcare costs.
💡Unlike a flexible savings account (FSA), you get to keep the money you don’t use, and it follows you after you leave a job.
💡 Think of it like a 401(k) for healthcare, except you don’t have to wait till you’re old to use it. (But you can save it till you’re old and it’ll grow with interest.)
💡 But to be eligible to contribute to an HSA, you need a special high-deductible, high-premium health (HDHP) health plan.
💡The “high premium” part doesn’t mean the monthly premium is more than regular plans. It just means that the ratio of premiums:deductible is higher than with regular plans.
But the cool thing about HDHP plans is that their out-of-pocket maximums tend to be pretty close to the deductible. Sometimes, they’re equal.
Which means that you pay for everything until you hit your deductible, but after that you’re done or almost done paying.
Which can be a good deal for people who:
1. Pay for a large part of the premium themselves
AND
2. Have really high healthcare costs
Here’s how it works:
I once helped a group that had a Good Dad in a bad situation.
The company offered strong plans (Gold and Platinum), but only had the budget to cover 50% of the employee’s own health insurance and 0% of dependents.
Good Dad had four kids and a spouse that didn’t work. He also had a daughter with a serious health condition. Good Dad’s family always hit their out-of-pocket max by February.
Good Dad was on the Platinum plan, which is what they tell you to do when you go to the doctor a lot. But between premiums, deductibles, and coinsurance, he was paying about $50,000 per year in healthcare costs.
Good Dad worked hard and Good Daughter was a good student. They didn’t deserve to see so much of his paycheck and her college fund go to healthcare costs.
Solution:
At the next renewal, we added a Gold HDHP plan to the company’s menu. That alone saved Good Dad a whopping $10,000 in premiums, $8,550 of which he could put into his HSA tax-free.
He still had a $10,000 out-of-pocket max (slightly higher than the previous year), but since he was paying the first $8,550 with pre-tax dollars from his HSA, he saved about $3,000 in taxes.
There were more details not covered here. But all in all, Good Dad saved about $15,000 per year by switching to the HSA eligible plan.
👋 I’m Claire. I think about this stuff a lot. This month I'm talking all about employer group insurance in my Substack: Why you hate it, what employers should know, what employees should know, and how to get the most out of it.
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