Under the ACA, can I still have an individual HDHP and an HSA?

There was initially some concern that high deductible health insurance plans (HDHPs) wouldn’t be able to meet the ACA’s actuarial value requirements (at least 60% of average costs covered), but that was resolved prior to the 2014 launch of the ACA’s exchanges. HDHPs are well-represented among the ACA-compliant individual market plan options, both on and off the exchanges.

And starting in 2019, HHS began considering ways to encourage more insurers to offer HDHPs, and “exploring how to use plan display options on HealthCare.gov to promote the availability of HDHPs to applicants.” For HSA-eligible plans in 2021, HealthCare.gov displays the plan with a blue banner (under the monthly premium amount) that says “Eligible for a health savings account.” This is a more prominent notice than the one that was used prior to 2020. In short, HDHPs are alive and well, and HHS is focused on making them a more attractive option for more enrollees.

Very high-deductible plans (which have never been HSA-qualified HDHPs) are no longer allowed under the ACA. So for example, while it was possible to buy a plan with a $10,000 individual deductible prior to 2014, those plans are no longer sold (the highest allowable out-of-pocket exposure in 2021 is $8,550 for an individual, including the deductible, coinsurance, and any other in-network out-of-pocket costs; this upper limit on out-of-pocket costs will increase to $8,700 in 2022). But those plans weren’t HSA-qualified in the first place, as their out-of-pocket expenses were too high. HSA-qualified high deductible plans have always had upper limits on out-of-pocket exposure, much the way the ACA now imposes such limits on all plans.

So while the ACA did away with plans with extremely high deductibles and out-of-pocket exposure, the new guidelines worked perfectly with the regulations pertaining to HSAs and HDHPs.

Read more: How does a health savings account (HSA) work?

How the ACA changed HDHPs

The Affordable Care Act did change a couple of rules regarding HSAs, effective in 2011:

• Prior to 2011, the penalty for HSA withdrawals for non-medical purposes was 10%. But it doubled to 20% on January 1, 2011. Account holders can avoid this fee as long as they either use their HSA funds for medical expenses OR wait to withdraw funds until they’re at least 65. After that, income tax applies to withdrawals for non-medical purposes, but there’s no penalty.
• Prior to 2011, HSA funds could be used for over-the-counter medicines. But under the ACA, from 2011 through 2019, OTC medicines could only be purchased with HSA funds if a doctor prescribed them. That changed in 2020, however, with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which permanently relaxed these rules, retroactive to January 1, 2020. Under the CARES Act, HSA funds can be used to pay for OTC medications, and also menstrual products.

Under ACA regulations, HSA-qualified plans (like all plans) must cover preventive care with no cost-sharing and without requiring the insured to meet the deductible first. Under HSA regulations, no other claims can be covered before the deductible is met (although the IRS expanded the rules in 2019, to allow more services to be considered preventive care under HSA-qualified plans, and paid by the insurer pre-deductible). These two regulations have co-existed well since 2014, when all new HSA-qualified plans have also been ACA-compliant.

But state health insurance mandates do present a potential conflict with IRS rules for HDHPs. States can require additional benefits, going above and beyond the ACA’s reforms. If a state requires benefits that exceed the IRS limits for HDHPs, however, it can result in the plans losing their HDHP status. An example of this is pre-deductible coverage for male contraceptives. A few states have mandates requiring health plans to cover male contraception pre-deductible, but the IRS does not consider male contraception to be preventive care. To address the issue, the IRS provided transitional relief, through 2019, to anyone covered on a plan that would otherwise be an HDHP, but which also included pre-deductible coverage for male contraception. The idea was to give states time to revise their laws to except HDHPs from the male contraceptive mandates, without penalizing enrollees in the meantime.

As a result of the COVID-19 pandemic, the IRS also relaxed the rules to allow HDHPs to pay for COVID-19 testing and treatment pre-deductible without compromising the plan’s HSA eligibility.

Out-of-pocket exposure: A growing gap

In 2014, the out-of-pocket maximums for individual health plans under the ACA were the same as the limits on HDHPs:  $6,350 for individuals and $12,700 for families.

But in 2015, the ACA began to allow maximum out-of-pocket limits even higher than those allowed for HSA-qualified plans. Under ACA guidelines, the maximum out-of-pocket for all plans in 2015 was $6,600 for an individual and $13,200 for a family. But HSA guidelines limited the maximum out-of-pocket on HSA-qualified plans in 2015 to $6,450 for individuals and $12,900 for families.

That gap has continued to increase every year since then. The maximum out-of-pocket limit on all plans in 2021 is $8,550 for individuals and $17,100 for families. But for HSA-qualified plans, the out-of-pocket limits are quite a bit lower, at $7,000 for an individual, and $14,000 for a family. For 2022, those numbers will increase to $8,700/$17,400 for non-HDHPs, and to $7,050/$14,100 for an HDHP, further widening the gap.

Clearly, HSA-qualified high deductible plans fit easily within the guidelines established by the ACA. And they have remained a popular choice in the individual health insurance market since the bulk of the ACA’s reforms took effect in 2014. But while they were among the lowest-priced options on the market in the early years of ACA implementation, that has begun to change as the maximum allowable out-of-pocket exposure on non-HDHPs has climbed quite a bit higher than the maximum allowable out-of-pocket exposure on HDHPs.

Higher out-of-pocket costs generally go hand-in-hand with lower premiums, which means that there tend to be several plans in most markets that are now priced lower than the available HDHPs. And while HDHPs were primarily in the bronze and silver metal levels in 2014, they’re becoming more common in the gold level. But by and large, HDHPs do continue to be among the lower-priced options in each area.

What about standardized plans?

There was initially some worry about HSA-qualified plans being driven out by standardized plans, but that has not come to pass. HHS introduced optional standardized plans for 2017 on Healthcare.gov, and included a bronze HDHP in the standardized plan designs for 2018. But they did away with the standardized plan designs altogether as of 2019. Instead, they have worked to develop ways to put more of a focus on HDHPs and working to differentially display them on the plan comparison screen, to make them more obvious to consumers (the HSA-eligible tag for plans sold on HealthCare.gov is larger and more obvious now than it was prior to 2019; there is also a filter that consumers can use to narrow down the options to only see HDHPs).

In California, the exchange requires all plans to be standardized, and they’ve always had a standardized HSA-qualified plan design (California is the only state that doesn’t allow any non-standardized plans to be sold on the exchange).

Embedded individual out-of-pocket maximums

One market-wide change that took effect in 2016 requires that all family plans include embedded individual out-of-pocket maximums that don’t exceed whatever HHS has set as the individual out-of-pocket maximum for that year (so in 2021, plans with multiple family members must have individual out-of-pocket maximums that don’t exceed $8,550).

Embedded individual out-of-pocket maximums were already the norm on plans that weren’t HSA-qualified, but many HSA-qualified plans traditionally utilized an aggregate family deductible and out-of-pocket maximum when more than one person was covered by the plan. So for example, an HDHP with a $10,000 family deductible used to be able to require the full $10,000 deductible to be met before services were covered, even if just one family member needed medical care. Those plans must now embed an individual out-of-pocket maximum on all policies that have more than one covered family member, and the individual out-of-pocket maximum cannot exceed the maximum individual out-of-pocket exposure that HHS sets for all plans for the year.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for healthinsurance.org.