HDHPs, HSAs, supplemental medical insurance ... how do these different insurance tools work together? Let’s take a look at three different scenarios and see what you would need to pay based on the kind of insurance coverage you had in place.
Joyce Noah-Vanhoucke
Coverage Options
Here are the four coverage options we’ll consider:
High deductible health plan (HDHP) alone. This is the likely scenario for most Americans on an HDHP plan.
HDHP + HSA. Adding a Health Savings Account (HSA) is highly recommended for anyone with an HDHP. We’ve explained this in more detail in another article (link).
HDHP + Hospital Plan. Anyone can buy hospital indemnity insurance and add it to their coverage portfolio. In these examples, we use coverage from the Liferaft Hospital Stay plans.
HDHP + HSA+ Hospital Plan. In this case, you’re using all you can to manage your cash flow and avoid extra costs.
For more quantitative case studies, let’s make some reasonable assumptions about the costs and coverage each of these insurance tools provide.
| Monthly Cost | Coverage / Benefit | |
|---|---|---|
| HDHP | $120 | - $25 copay - $1,500 deductible - 80/20 co-insurance - $6,900 max out-of-pocket |
| HSA | $295 (max contribution) | $1,770 (6 mo of savings so far) |
| Hospital Insurance | $15 | Hospital - $350/day ICU - $700/day |
Scenario 1: Preventative Care
In this scenario, you are fortunate enough to have no health events and to require nothing more beyond preventive care and check-ups. In this case, your visits and meds come to an easy $100.
Scenario 2: Torn Rotator Cuff
In this scenario, you are helping a friend move when you suffer a shoulder injury that gets diagnosed as a torn rotator cuff. Unfortunately, this will require surgery and 4 days in the hospital, plus some recovery time at home.
This type of surgery ranges from $6,000 to $20,000 in cost. Relying on your insurance plan alone means you’ll pay your deductible and then 20% of medical bills up to your out-of-pocket maximum, totaling $3,500 in payments you need to make.
If you use your HSA dollars, that total can come down to $1,730. However, your HSA is now at $0 and will need to be replenished in the future.
If you use your hospital stay insurance, you would receive a benefit of $1,400 to bring your total costs down to $2,100.
Having both an HSA and hospital insurance assures the best outcome by combining the saved $1,770 and $1,400 insurance benefit to bring your cost to $330, an entirely manageable amount.
Scenario 3: Serious Illness
The real value of insurance comes in the face of large, unexpected and expensive events. In this scenario, you are diagnosed with a serious illness that requires 14 days of hospital care. While we hope this on no one, these are the events for which insurance is key.
Assuming you rely entirely on your HDHP alone, your cost burden will be your out-of pocket maximum, a whopping $6,900. Unfortunately, this only concerns your medical bills and does not take into account lost wages, recuperation expenses, and other help you may need in getting back on your feet after such a lengthy hospital stay. The primary weakness of an HDHP is when a major medical event occurs and you are expected to shoulder the significant bills that follow.
If you had an HSA paired with the HDHP, you’re in somewhat better shape as you have an extra $1,770 to draw upon, bringing your total due to a still hefty $5,130. Again, your HSA is now at $0 and will need to be replenished in the future.
A hospital insurance plan is designed to help specifically in this kind of situation. Moreover, Liferaft hospital stay plans provide a cash payout for every day you are hospitalized, so the coverage amount grows with the severity of your needs as indicated by the length of your hospital stay. In this case, you can rely heavily on the $4,900 cash benefit to offset your costs, bringing the total to a high but not as crushing $2,000.
"Using hospital insurance together with an HSA yields the most wallet-friendly option"
Using hospital insurance together with an HSA yields the most wallet-friendly option, resulting in $230 in medical payments due. Although your HSA is now at $0, you have been specifically saving this money in the event of a health emergency. You may also choose to not zero out your HSA, tuning what you pay to what makes the most sense for your situation.
Liferaft Hospital Stay Plans
At Liferaft, we offer one of the simplest and most affordable hospital indemnity insurance plans on the market. For as little as $5/mo, you can minimize the financial risk of an HDHP while protecting your HSA and future retirement dollars.
Click below to explore our plan options and pricing.
Do you have questions or are interested in a free insurance assessment? Give us a call at (408) 933-9658 or send a message to [email protected]. We're always ready to talk insurance!
Back to Resources home