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Supplemental insurance for Health Savings Accounts

The expansion of employer-provided high deductible insurance triggered a need for supplemental health coverage for families who cannot afford the high limits of exposure

by Tony Novak, CPA, MBA, MT, NAHU certified consumer driven health care consultant, originally published 3/7/2012

The expansion of high deductible insurance presents a problem for individuals and families that cannot afford to pay for routine medical care and the out-of-pocket costs that typically range from $1,000 to $10,000 per year as dictated by federal tax laws governing Health Savings Accounts.

Top 3 most popular supplemental insurance choices with a HSA:
  1. Smart Accident Insurance
  2. UCT dental/vision/hearing
  3. Value Access Guarantee

Supplemental health insurance has grown in popularity for a wide range of purposes. The collective number of supplemental health insurance policies will soon exceed the number of primary or essential benefit policies, according to research by LIMRA.  In most parts of the U.S supplemental insurance is easy to find: hospitalization plans like Core Health Insurance, disability income replacement coverage like UnitedHealthOne, Smart Accident coverage, and Value Benefits Emergency Room are just a few of the most popular options.

Health Savings Accounts present a special problem. Federal tax law says if you plan to take advantage of the tax-advantaged savings account in the current year then you may not be covered by additional "disqualifying insurance".

If you plan to make a Health Savings Account contribution

If you or your employer intend to make a contribution to your Health Savings Account, then you can have additional insurance that provides benefits only for the following items:

Some insurance policies contain a blend of different types of coverage and so it becomes difficult to determine whether the plan is compatible with a Health Savings Account. In those cases we rely on statement of determination from the insurance carrier or the plan administrator. For example, the administrator for Value Benefit plans has written that their plans are HSA-compatible. To see the options available where you live, click your state on the map on the Freedom Benefits home page.

If you do not plan to make a Health Savings Account Contribution

If your primary concern is improving your insurance coverage and you do not intend to contribute money to a Health Savings Account then any type of supplemental coverage is available. Consider one of the most popular Core Health Insurance by U.S. Fire Insurance Company. Alternately, any of the supplemental insurance plans available in your state will work: choose your state from the home page for a complete listing of choices.

When in doubt get written guidance

Our free OnlineAdviser service can offer specific written guidance whenever there is a question about allowable coverage. (Do not rely on a verbal statement on anything regarding your health insurance). IRS Publication 969 provides additional information on this topic. 

No coordination of benefits

Regardless of the type of supplemental insurance used, it is important to recognize that there is no coordination of benefits between the HSA-qualified major medical insurance and the supplemental plan. This means that the benefits of one policy are calculated without considering what is or what is not covered by the other policy.

No coordination also means that there is no direct match-up of financial risks between primary and supplemental coverage. For example, if an HSA insurance policy has a $2,500 deductible, there is no supplemental insurance policy that pays the first $2,500 of your medical expenses below the deductible. There is, however, a supplemental policy that will pay a total benefit of at least $2,500 based on its own coverage formulas completely unrelated to the coverage of the major medical policy


About the author - This Web page and related content is written and periodically updated by Philadelphia-based consumer finance writer Tony Novak who has covered health care reform issues for various formats for about 30 years. Comments, questions, feedback and updates are welcome to help keep content relevant and up-to-date. Contact the author directly by e-mail, on Twitter or through the contact information included on his Web site. Article reprint rights as well as specifically customized content may be available on request. Some content may be offered for reprint without charge; other content may be offered for a fee.   email Tony Novak  Follow Tony Novak on Twitter

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This web site is independently owned and managed by Tony Novak operating under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator". Opinions expressed are the sole responsibility of the author and do not represent the opinion of any other person, company or entity mentioned. Tony Novak is not an agent, broker, producer or navigator for any federal or state health insurance exchange but may provide uncompensated advice, reviews and referrals to these official resources. Novak is compensated as an accountant, adviser, affiliate consultant, marketer, reviewer, endorser, producer, lead generator or referrer to some of the other commercial companies listed on this site. Information is from sources believed to be reliable but cannot be guaranteed.