An HSA-compatible plan is a “High Deductible Health Plan” (HDHP) with an annual deductible that is not less than $1,400 for self-only coverage and $2,800 for family coverage in 2020. For 2020, maximum out-of-pocket expenditures cannot be more than $6,900 for an individual or $13,800 for a family.
The benefit of a HDHP is lower monthly premiums, but the disadvantage is that in the event that you become ill, this high deductible means that your health insurance does not kick in until you have paid that amount out-of-pocket. High deductible plans can be beneficial if you don’t anticipate incurring health expenditures regularly and you have sufficient disposable income to fund the HSA or pay for health care services out-of-pocket until you meet your plan’s deductible. High deductible plans can be risky if you have not set money aside and experience an unexpected need for health care services. (IRS Bulletin 2019-22, May 28, 2019).