HSA vs. Copay: Which Is Better For You?

Shopping for a health insurance plan can be stressful. Explore these tips to determine what works with your financial and healthcare needs.

Choosing between a traditional copay plan and a High-Deductible Health Plan (HDHP) with a Health Savings Account (HSA) can be quite easy when you understand each option. Begin by examining each plan’s differences, advantages and disadvantages, and cost to you over time.

Copay Plan

In comparison to a HDHP, a copay plan has predetermined costs you must pay anytime you receive specific medical services. The fixed payment is established by the insurer and won’t vary depending on the cost of your visit or medication.

Something else to consider is a plan’s deductible and out-of-pocket maximum. A deductible is the amount of money that you need to pay for certain medical procedures, prior to your coinsurance kicking in. The out-of-pocket maximum is the max amount you’ll pay for medical expenses; once met, your insurance will cover excess costs for that calendar year.

Check your Summary of Benefits and Coverage to determine whether copays count towards meeting deductible or out-of-pocket maximums.

How Does It Work?

While it will vary by plan, a copay plan could look something like this:

• $35 copay for office visits
• $20 copay for generic prescription medicine
• $60 copay for brand name prescription medicine

Depending on the plan, certain services such as preventative care generally don’t require a copay. The main difference is that under this plan you’ll pay a higher monthly premium. A perk of having a copay plan is always knowing how much you’ll pay when visiting a doctor or emergency room.

Plan With HSA

HSAs are interest-bearing savings accounts that grow tax-free. They work in combination with HDHPs and are used to save for qualified medical expenses not covered by your plan. If used toward these expenses, funds can be withdrawn tax-free.

Something to remember is HSAs are always used alongside HDHPs, which tend not to cover anything in full aside from preventative care. So if you need to see a doctor, you’re expected to pay the entire medical bill, until your deductible is met and coinsurance kicks in. At that point, you’ll only pay a percentage as determined by your plan.

Active HSAs allow contributions from almost anyone, but will most commonly come from the account owner and their employer. Note that there’s a contribution limit set by the IRS annually that depends on whether you have self or family coverage.

How Does It Work?

After paying your deductible your co-insurance will kick in, which is just cost sharing percentages between you and your insurance company. For example, if you’ve met your deductible of $2000 for the year, you might be responsible for something like 20% when you visit a specialist. This means you’d only be responsible for $20 if you’re billed $100 for a visit.

These plans are a great way to have a coverage at a lower premium. The biggest perk of having an HSA is that funds will always roll over from year to year. Also, at the age of 65 you’re able to use the funds in your HSA for any reason without being penalized. You’ll just pay income tax on funds used on non-health expenses.

Neither plan is better than the other; you just need to decide which one meets all of your needs and will benefit you the most.