HDHP/HSAs Vs Traditional Health Insurance Plans

While traditional health insurance plans have been around for a long time, Health Savings Accounts (HSAs) have also gained popularity in recent years due to their unique advantages. But they are not meant to substitute a health insurance plan alone. To contribute to an HSA, you must be enrolled in a High Deductible Health Plan (HDHP), which offers the leanest benefits and has high deductibles, coinsurance payments and copayments. An HDHP is a specific type of health insurance plan that meets certain criteria set by the IRS and is not to be confused with a catastrophic plan or a bronze health plan.

Understanding the differences between a traditional health insurance plan and a HDHP/HSA is especially important when it comes to gaps in coverage. Here’s more.

On This Page

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  Traditional Health Insurance Plans

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  Health Savings Accounts (HSAs) with a High Deductible Health Plan (HDHP)

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  HDHP/HSAs Vs. Traditional Health Insurance Plans FAQs

Traditional Health Insurance Plans

Traditional health insurance plans come in several types, the most common being Preferred Provider Organizations (PPOs), Health Maintenance Organizations (HMOs), Exclusive Provider Organizations (EPOs) and Point of Service Plans (POS). These types of coverage have long been the standard in healthcare coverage for offering comprehensive coverage for a wide range of medical services. Here are some key aspects of traditional health insurance plans:

Coverage Tiers

Aside from the type of plan you have, you’ll choose which level of coverage you want. Catastrophic plans cost the least and platinum plans cost the most.

• Catastrophic Plans: Catastrophic plans are designed for young and healthy individuals who want to protect themselves against major medical expenses. They have low premiums but high deductibles and only cover essential healthcare after the deductible is met. Catastrophic plans are typically available to individuals under 30 or those who qualify for a hardship exemption.
• Bronze Plans: These plans provide the lowest monthly premiums but have the highest out-of-pocket costs. They typically cover about 60% of essential healthcare costs. Bronze plans are a good choice for individuals who are generally healthy and don't expect to use healthcare services frequently.
• Silver Plans: Silver plans offer a balanced approach, covering around 70% of essential healthcare costs. They have moderate premiums and out-of-pocket costs. Silver plans are a popular choice for individuals or families who want a reasonable balance between cost and coverage.
• Gold Plans: Gold plans have higher monthly premiums but cover about 80% of essential healthcare costs. They are suitable for individuals who anticipate using healthcare services more frequently or have ongoing medical needs.
• Platinum Plans: Platinum plans have the highest monthly premiums but offer the most comprehensive coverage, covering approximately 90% of essential healthcare costs. They are ideal for individuals who expect to incur significant medical expenses or want the highest level of coverage.

Traditional health insurance plans come in several types, the most common being PPOs, HMOs, EPOs and POS.

Health Plan Network Restrictions

Most traditional plans have a network of healthcare providers and facilities. Using in-network providers is often the only choice for coverage or it is more cost-effective. For example, if you have an HMO or EPO, you are more restricted and need to see in-network providers. With a PPO or POS plan, you’ll pay less if you stay within the network but may find coverage out-of-network but with higher out-of-pocket costs.

Copayments and Deductibles

Traditional plans generally require copayments for doctor visits and prescription drugs. With a PPO you will have an annual deductible that you must meet before the insurance plan begins covering your medical expenses. With an HMO, you are not subject to a deductible but will have to pay a set copay for your primary care physician and a higher copay when you see specialists referred to you by that primary care physician.

Predictable Costs

Traditional plans offer a more predictable cost structure, with the same premium amount each month, making it easier to budget for healthcare expenses. You know what to expect in terms of co-payments, deductibles and monthly premiums.

Comprehensive Coverage in Case of Illness or Accident

Individual and family health insurance plans that are bought individually or sponsored by an employer are designed to provide comprehensive coverage for various healthcare needs, including hospital stays, preventive care, surgeries, specialist visits and prescription drugs. With a traditional health insurance policy, there is a cap on how much you’re responsible to pay for health care costs in a given year. You also have a set and shared responsibility in paying for doctor visits and treatment.

Health Savings Accounts (HSAs) with a High Deductible Health Plan (HDHP)

HSAs alone are not a substitute for a health insurance plan. An HSA is a tax-free savings account that can be used in conjunction with a high-deductible health plan (HDHP) to pay for copays, coinsurance and payments towards a deductible. You can use the money in the HSA for any health-related costs, including over-the-counter medications and copays, and roll over unused funds for the following year. However, there are some gaps in coverage with an HSA/HDHP compared to traditional plans and are not designed to work alone:

HSAs Have High Deductibles

HSA/HDHPs are associated with high deductibles, meaning you'll have to pay a significant amount out of pocket before you’re covered. This can be challenging for individuals with chronic conditions or those who require medical care regularly. You can use the money you fund, tax-free, in your HSA to pay the deductible.

For the 2023 tax year, an individual HDHP had a minimum deductible of $1,400 and an out-of-pocket maximum of $7,050. Family coverage HDHPs had a minimum deductible of $2,800 and an out-of-pocket maximum of $14,100. Like traditional plans, HDHPs come in various metal tiers (Bronze, Silver, Gold, and Platinum) but have a higher deductible than the traditional plan equivalent.

HSAs Have Limited Preventive Care

While preventive services are covered and sometimes free with a traditional health plan, this may not be the case with HDHP/HSAs. You may need to pay for all doctor visits, prescription drugs and specialist visits until you reach the deductible. HDHPs typically cover some preventive care services, such as vaccinations and screenings, without requiring you to meet the deductible.

Out-of-Pocket Expense With an HSA

HSAs require you to fund the account to use for qualified medical expenses. However, you are responsible to pay for expenses until you meet the high deductible on the HDHP you paired it with. Using an HSA/HDHPcan result in higher out-of-pocket costs overall compared to traditional plans, which have no deductible or a lower deductible.

HDHP Have a Limited Network

Some HDHPs have a limited network of healthcare providers, which can restrict your choice of doctors and specialists. Using out-of-network providers may result in even higher costs.

Gaps in HDHP/HSA Coverage

The key difference between traditional health insurance plans and HSAs is the level of financial responsibility. Traditional plans offer more comprehensive coverage with lower deductibles and predictable costs. In contrast, HSAs paired with HDHPs have lower monthly premiums but much higher deductibles and require individuals to contribute to their savings accounts. They will have limited coverage overall and will cost more if health care needs go beyond preventive care.

HSAs offer tax benefits and long-term savings potential, and they are best used to cover fixed medical expenses like copays for medical services and prescription medication with a high deductible plan.