Please help me evaluate my HDHP/HSA plan

[ericbonabike]

Hey all,

Company is rolling out a brand new HDHP plan with HSA.  I've read alot about them, but never partaken.
I've got about 15 days to figure out which plan is right for me:

Here's the scoop:
My wife and I both work for said company.  We have 3 kids.  15,14,2. 
My company will kick $2400 into the HSA with a slim chance of that being increased to $3600.   I'll explain why below.

Option #1 (this is what we currently have)
Medium Deductible insurance plan:  $450 per month.  $500/$1000 deductible (we hit the $1000 about a month ago for this current year). 

Option #2: HDHP Insure as a family.
Cost is $318 per month  $3000/6000 plan.    Company contributes $2400 to the HSA.  But they've got a weird restriction that I have to have 50k in account before I can invest it.

Option #3 HDHP Insure as Parent + Children   (me)  and Single Employee (Wife)
Cost is:  $210 (me+kids)  and $108 (wife).  Total cost is $318 per month.  Same deductibles as #2.   I our company would put $2400 in my HSA, she'd get company contribution of $1200.  Total company contribution is $3600.  I'm not 100% sure if this is legal, but I believe it would be as long as the total contribution stays below $7100??

Downside for Option #3 is that her deductible would have to be reached independently from me and kids.  But she's relatively young and doesn't see a doctor except for BC (which I think is still free thanks to ACA).   My kids spending are pretty low also.  My youngest goes to doctor 2-3 times per year on average.  My older kids go a little bit less (sick less often).

I'm the big spender medically, as I'm on a few meds which would cost close to $3000 per year.   And get to see doctor a minimum of 4 times per year.




If I go with HDHP I save ($450 - $318) a month = $1584 annually.   Company kicks in another $2400 or $3600, and that brings our total annual gain up to $3984 or $5184.  That's "free" money. 
 I spend about $3k a year, so am I right in figuring that I will still come out a minimum of $900 ahead with HDHP?   Plus the tax advantage of deducting whatever contribution I make to take our total up to the IRS limit of $7100??

[MDM]

Company contributes $2400 to the HSA.  But they've got a weird restriction that I have to have 50k in account before I can invest it.

You don't have to leave the money in the HSA account your employer uses.  Fidelity and Lively (maybe others?) offer no-fee (beyond the individual fund fees) HSAs. See How To Rollover an HSA On Your Own and Avoid Trustee Transfer Fee.

Might be worth putting your numbers into a couple of comparison tools, e.g., Health Savings Account (HSA) vs. Traditional Health Plan and the 'HDHP Analysis' tab of the case study spreadsheet to confirm your hand calculations (that seem fine at a quick glance).

[DaMa]

One thing you might not realize...in an HDHP you have to hit the family deductible before coverage starts.  So if the single deductible is 3000 and the family deductible is 6000, you will have to pay out the whole 6000 even if only one person has claims. 

In other plans, each individual usually has a deductible and two people would have to have claims in order to ever get to the family deductible.

So if your wife takes the individual plan, she would have the 3000 deductible, but you and the kids would still have the 6000 deductible.

[MDM]

One thing you might not realize...in an HDHP you have to hit the family deductible before coverage starts.  So if the single deductible is 3000 and the family deductible is 6000, you will have to pay out the whole 6000 even if only one person has claims.

That's not what https://www.irs.gov/pub/irs-pdf/p969.pdf says.

For a plan to be an HDHP, the individual deductible within a family plan does have to meet or exceed the IRS-specified amount.  Once an individual reaches that amount, however, further costs incurred by that individual will be covered (with whatever co-pay).

See p. 4 of Pub 969 (linked above):

There are some family plans that have deductibles for  both  the  family  as  a  whole  and  for  individual  family members.  Under  these  plans,  if  you  meet  the  individual deductible for one family member, you don’t have to meet the higher annual deductible amount for the family. If ei-ther the deductible for the family as a whole or the deduc-tible for an individual family member is less than the mini-mum  annual  deductible  for  family  coverage,  the  plan doesn’t qualify as an HDHP.

[ericbonabike]

One thing you might not realize...in an HDHP you have to hit the family deductible before coverage starts.  So if the single deductible is 3000 and the family deductible is 6000, you will have to pay out the whole 6000 even if only one person has claims. 

In other plans, each individual usually has a deductible and two people would have to have claims in order to ever get to the family deductible.

So if your wife takes the individual plan, she would have the 3000 deductible, but you and the kids would still have the 6000 deductible.

I don't believe that's true.
My understanding is that the following math is true:
Family consists of Bob, Jane, Stan, and Mary.

Scenario A
Bob spends $2300.    All of that is applied to his deductible and all of that is applied to the family deductible.
Jane spends $500,  All of that is applied to HER deductible.  And all of that is applied to family deductible.
Stan spends $3000.  His deductible is now maxed.  But the total family deductible is still only:  $5800.
So, when Mary spends another $600.  The first $200 is applied to the family deductible, which is now maxed at $6000, and the rest of the $400 is paid under the plans provisions.

Scenario B
Bob spends $2800.    All of that is applied to his deductible and all of that is applied to the family deductible.
Jane spends $500,  All of that is applied to HER deductible.  And all of that is applied to family deductible.
Bob needs a bit more stuff, $1200 more of medicine.  The first $200 is applied to his deductible taking it to the max $3000, and the rest of the $1000 is paid for under the plans provisions.  (I'm a little fuzzy if any kind of copayments would count toward the family deductible still).   Family deductible is:  $2800 + 500+200+(copayments??)  = 3500
Stan spends $3000.  The family deductible max of $6000 is hit with the first $2500 of his expenses.    The rest of the $500 would be paid for by the plan.
So,  In this case, doesn't matter what Mary spends,  since the family deductible is maxed out, her stuff is covered.


But yes, if my wife had a separate plan, she'd have to meet her deductible and non of her contributions would apply towards me and kids in the other plan.  Nor vice versa.



Follow up questions 
Is there any way for an employer to prevent you from moving dollars out of an HSA into another 3rd party HSA?
And if my employer contributes $2400 to my HSA, and $1200 to my wife's HSA, then we can contribute (in total) $7100-$3600 =  $3500 as qualified HSA contributions??

[EvenSteven]

Is there any way for an employer to prevent you from moving dollars out of an HSA into another 3rd party HSA?

No, but the HSA administrator your work chooses could have transfer fees. However, this is rare, I haven't heard of any administrator doing this.

And if my employer contributes $2400 to my HSA, and $1200 to my wife's HSA, then we can contribute (in total) $7100-$3600 =  $3500 as qualified HSA contributions??

Yep.

What works for me is: wife and kid on "medium deductible" plan, me on HDHP with HSA. I can still use HSA funds to cover medical costs for wife and kids if needed (but contribution limits are for an individual).

This helps with the psychology of not worrying so much about doctors costs when thinking about providing health care to the kid.

[terran]

As others have said, you don't have to leave the money in your company's HSA. I would (do) transfer out to Fidelity. If your company's HSA charges a fee (as mine does) you can make an indirect rollover by withdrawing from your company's HSA just as you would if reimbursing yourself form medical expenses (they don't need to know what the withdrawal is for as it doesn't change how they report it) and contributing it to your Fidelity HSA as a rollover contribution (they do need to know it's a rollover contribution as it does change how they report it).

You can do this at most once per rolling 12 month period. Note that this is not be calendar year, but once every 12 months. You'll report this on your taxes with form 8889, and won't owe tax or penalty as long as the amount withdrawn is less than or equal to the amount contributed plus the amount spent on qualified medical expenses

[DaMa]

One thing you might not realize...in an HDHP you have to hit the family deductible before coverage starts.  So if the single deductible is 3000 and the family deductible is 6000, you will have to pay out the whole 6000 even if only one person has claims.

That's not what https://www.irs.gov/pub/irs-pdf/p969.pdf says.

For a plan to be an HDHP, the individual deductible within a family plan does have to meet or exceed the IRS-specified amount.  Once an individual reaches that amount, however, further costs incurred by that individual will be covered (with whatever co-pay).

See p. 4 of Pub 969 (linked above):

There are some family plans that have deductibles for  both  the  family  as  a  whole  and  for  individual  family members.  Under  these  plans,  if  you  meet  the  individual deductible for one family member, you don’t have to meet the higher annual deductible amount for the family. If ei-ther the deductible for the family as a whole or the deduc-tible for an individual family member is less than the mini-mum  annual  deductible  for  family  coverage,  the  plan doesn’t qualify as an HDHP.

Thanks.  I did not know that if your individual deductible is at least the family minimum ($2800 in 2020), it can be done that way.  My highest deductibles so far were $2000/$4000.  I would look for it in the plan documents, though.  They can do it doesn't mean they do.

[ericbonabike]

So, you're saying if:

Bob spends $3000, then all other family members will have satisfied their deductible requirements even if the total family expenditures is less than the family deductible amount?

[MDM]

So, you're saying if:

Bob spends $3000, then all other family members will have satisfied their deductible requirements even if the total family expenditures is less than the family deductible amount?

No, only that Bob has satisfied his individual deductible.  The family deductible for total family expenditures still applies.

Bob's further expenses are covered, but other family members' expenses remain subject to the family deductible.

[ericbonabike]

Does anybody know of a restriction made by the IRS which would limit how much an employer could contribute to an HSA?

My employer is saying that the IRS has told them they can't put in more than $2400 into a family HSA annually.

[MDM]

Does anybody know of a restriction made by the IRS which would limit how much an employer could contribute to an HSA?

My employer is saying that the IRS has told them they can't put in more than $2400 into a family HSA annually.

No.

You might ask your employer to cite the specific IRS regulation.  It is not in https://www.irs.gov/pub/irs-pdf/p969.pdf, nor 26 U.S. Code § 223 - Health savings accounts.