Employees losing employer group health coverage may be surprised to learn that selecting a Marketplace or individual plan with an extremely high deductible will render them ineligible to contribute to their Health Savings Account (HSA).

HSAs are marketed as the 401(k) plans of the health world.  If you have a qualifying high deductible health plan (HDHP), you can contribute a certain amount to an HSA.  The money that you contribute to your HSA is yours and you can take it with you if you change employers or retire.   You can even invest your HSA money in the same manner as your 401(k) account.

Common sense would imply that HSAs are available with high deductible health plans as a means to compensate for the requirement to pay all medical costs out of pocket until the high deductible is satisfied.  What defies common sense is that an HDHP can have a deductible that is too high. 

The Affordable Care Act sets maximum out of pocket costs for health plans ($6,850 individual/ $13,700 family).  The Internal Revenue Code sets maximum out of pocket costs for HSA qualifying high deductible health plans ($6,450 individual/ $12,900 family).  Unfortunately, the two maximums are not the same.  An individual that selects the Marketplace plan with the highest out of pocket costs is actually ineligible to make an HSA contribution because the Marketplace plan exceeds the HSA out of pocket limits. 

An employee comparing COBRA with Marketplace plans should factor in the tax savings created by the ability to make an HSA contribution.  A slightly higher COBRA premium may be offset by the tax savings of making a pre-tax HSA contribution. 

There are many factors to consider when deciding between COBRA or an individual plan such as networks, previously satisfied deductibles……and now, HSA eligibility.

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