I read with interest Ben Dobler’s February 5, 2025, article on “Why Health Savings Accounts (HSAs) Aren’t Always Worth the ‘Triple Tax Savings’[i].
Ben notes that HSAs require individuals to be covered by a “High Deductible Health Plan” which has tradeoffs compared to traditional coverage.
However, my 20+ years of hands-on experience with HSA-capable coverage confirms that where HSA-capable coverage is properly priced, communicated and marketed alongside a traditional PPO, the HSA-capable coverage option is always the superior option with few exceptions.
Why? Simple:
Only a handful of actively employed, age 18 – 64, non-disabled workers incur $1,000+ in medical expenses in each and every year of employment!
Who Incurs Medical Expenses, Who Pays Out-of-Pocket
Among working-age Americans (ages 18 – 64), 5% incur more than half of all medical spend (53%); 10% incur more than two-thirds (68%). And, most who have significant expense are early retirees, disabled, or non-working spouses and adult children.
In 2021, the bottom 50% incurred only 3% of all medical spend, just $385 in 2021!
And, in 2021, the bottom 50% incurred only 1% of the out-of-pocket spend, averaging only $24!
Working age Americans are overinsured. Many are in debt[ii]. Nearly 80% live paycheck to paycheck[iii]. So, few are ready for any out-of-pocket medical costs – most end up overinsured, and unprepared. And, because medical expenses tend to increase with age, few have any monies set aside for the higher cost of coverage and out-of-pocket spend at/after age 65 – where, for most, medical and long term care costs are the largest expense in retirement.
Why is HSA-capable Coverage Undersubscribed?
Why don’t more enroll? My 21+ years of HSA experience confirms that most employers who offer health coverage do not offer an HSA-capable coverage option. Further, most employers who do offer HSA-capable coverage, offer it as a choice – but positioning it poorly, introducing it incorrectly, with improper pricing, poor design, and marketing.
For example, according to the annual Kaiser survey[iv], a super majority of employers offer health coverage with a general deductible (87%) that averaged $1,787 for single coverage in 2024 – an amount far in excess of the minimum deductible necessary for HSA-capable coverage!
So, an employer could offer both a traditional PPO and an HSA-capable PPO – each with a general annual individual deductible of $1,787, with 80%/20% coinsurance after the deductible up to an annual out of pocket expense maximum of say $8,300. Clearly, the opportunity to contribute to an HSA would make the HSA-capable coverage option the better choice for every worker.
HSA-capable Coverage Is Introduced Incorrectly
Most employers add HSA-capable coverage as a second or third PPO option. Most use a passive enrollment process. Few deploy automatic enrollment processes. As we learned with 401k plans, inertia tends to leave workers where they are – here with the existing PPO option, even where the HSA-capable coverage is clearly superior for that individual.
HSA-capable Coverage Is Priced Incorrectly
Too many plan sponsors still provide an employer contribution that is a percentage of premium. Because the traditional PPO design typically has a lower deductible and a higher cost, the employer inadvertently and/or erroneously creates an incentive to enroll in the higher cost option.
HSA-capable Coverage Is Marketed Poorly
First, stop calling it a “High” deductible option – that’s like calling the 401k by its original name, a “salary-reduction savings plan”.
At the minimum, $1,650, the HSA-capable coverage deductible ain’t so “high”. Keep in mind that a $100 annual deductible in 1970, indexed for medical inflation (~7.4+%/year), would be well in excess of $4,500 today!
Second, stop naming the coverage based on the size of the deductible. Don’t name it the $1650 plan. That highlights and overstates the impact of the deductible as one of many plan components.
Third, descriptions such as in the Summary of Benefits & Coverage should incorporate all features – including employee contributions and any employer HSA contribution. Most side-by-side comparisons exclude those details because they are not part of Health Reform’s mandated disclosures.
Fourth, deploy an “informed enrollment” process – display a side-by-side comparison to show each worker which option was best for them. Once you have illustrated the best, consider changing the default at the next annual enrollment (a la your 401k plan).
Other Thoughts
Most financial advisors do not have all of the details necessary to assist workers in choosing health coverage each year. Few workers share all of the details necessary for such decision-making.
Mr. Dobler states:“… The aphorism “You get what you pay for” often holds true in health insurance …” NO, that simply is not true for those who are overinsured – and most working Americans are overinsured.
Mr. Dobler offers a number of examples. However, he fails to note that most HSA-capable coverage options are PPO options with a specific structure. He suggests HSA-capable coverage options are less valuable compared to traditional PPOs – including out-of-pocket maximums, access to “reputable” in-network providers, balance billing, Rx cost sharing, 100% paid preventive services, “embedded” deductibles, tiered networks, and separate Rx cost sharing.
However, a traditional PPO can have the exact same features as an HSA-capable PPO! You have to look at each coverage choice in its entirety – deductibles, copayments, coinsurance, out of pocket expense maximums, employee contributions, and employer contributions.
Mr. Dobler correctly notes that: “… for those with moderate or predictable medical expenditures (in any given year), HDHPs may not always be the best choice. …” Certainly true!
I very much appreciate his decision-making chart.
I highlighted (boxed) one provision – Long Time Horizon[v]. While Mr. Dobler does not define it, I’m guessing he means 5 or more years. That’s pretty much every American under age 60 today! No other benefit is as valuable to individuals as they approach retirement ages![vi]
So, in the long term, almost all workers obtain greater value from consistent participation in (and contributions to) HSA-capable coverage – opting out to a more traditional option in periods where other coverage better meets their anticipated needs.
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[i] Ben Dobler is the Director of Financial Planning at Personal Choice Financial (DBA Financial Rounds). Accessed 2/10/25 at: https://www.kitces.com/blog/ben-dobler-hsas-health-savings-accounts-hsa-high-deductible-health-plan-ppo-premium-deductible-triple-tax-savings-advantage-calculation/?
[ii] New York Federal Reserve Bank, Center for Microeconomic Data, Third Quarter 2024, Total household debt increased by $147 billion to reach $17.94 trillion. Accessed 2/10/24 at: https://www.newyorkfed.org/microeconomics/hhdc.html
[iii] Payroll.org, Getting Paid in America, 2024 Survey, 9/25/24. Seventy-seven percent of workers in America would experience some or significant financial difficulty if their paycheck were delayed (not missed) a week (only one week)! Accessed 2/10/25 at: https://info.payroll.org/pdfs/npw/2024-Getting-Paid-In-America-survey.pdf
[iv] Kaiser Family Foundation (KFF), Employer Health Benefits 2024 Annual Survey, 10/9/24, Accessed 2/10/25 at: https://files.kff.org/attachment/Employer-Health-Benefits-Survey-2024-Annual-Survey.pdf
[v] J. Towarnicky, Funding Retiree Medical & Long-Term Care for the Second Half of the 21st Century Solution: Make available and leverage all tax preferred savings options … then … save all you can! Retirement Section News, August 2020, Accessed 2/10/25 at: https://www.soa.org/globalassets/assets/library/newsletters/retirement-section-news/2020/august/rsn-2020-08-towarnicky.pdf
[vi] J. Towarnicky, Maximum Utility: Your HSA Can Do Quadruple Duty, Benefits Quarterly, 2nd Quarter 2021, Accessed 2/10/25 at: https://www.koehler.law/wp-content/uploads/sites/57/2021/05/Towarnicky-Maximum-Utility-Your-HSA-Can-Do-Quadruple-Duty-2nd-Qtr-Benefits-Quarterly-2021.pdf