Understanding health savings costs
More than 22 million Americans — 14 percent of those with private insurance — have enrolled in health care plans that include a special savings account known as an HSA that covers some of their medical expenses and is designed to save money.
But these health savings accounts are so new to most consumers, with 85 percent of them having been opened since 2011, that most people still don’ t quite understand them. They’ re often confused with another, different health benefit, the flexible spending account, or FSA.
“The employees who are being told about this new health plan don’ t even know what to ask, ” says Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute (EBRI) , who has sat in on meetings whereworkers learn about HSAs.
Don’ t know where to start? Here’s a helpful primer:
It’s similar to the way you contribute to your 401 (k) . The money is automatically deducted from your paycheck before taxes are taken out (so you also get a tax break) . You decide how much to contribute; the yearly maximum is $3,350 for people with individual coverage and $6,750 for those with family coverage. If you’ re 55 or older, you can save an additional $1,000 per year.
Some employers also make contributions to your HSA; make sure you know when those occur so you know how much money will be in your account at any given time. The contribution could come in a lump sum at the beginning of the year, or more likely, on a monthly basis.
Whenever necessary, as long as you’ re paying for something defined as a medical expense by IRS Publication 502. This list includes the expected, such as doctors’ visits or emergency care, but also things that often aren’ t covered by insurance, such as eyeglasses, chiropractic care, service animal care and breast pumps for nursing mothers. You can either pay the provider directly with a debit card linked to your HSA, or you can pay out of pocket and get reimbursed from the HSA later. As long as it’s being used for a medical expense, the payment to you is tax-free.
No. Most HSAs are combined with high-deductible insurance plans that have a minimum deductible of $1,300 for individuals and $2,600 for families. The average family deductible, however, is about $3,000 and can be as high as $6,000, says Dr. Stephen Neeleman, founder and vice chairman of Health Equity, one of the largest HSA managers in the U. S. This combo is known as a consumer-driven health plan (CDHP) .
The plans also limit how much of your non-HSA money you have to spend. After you hit the deductible, you either pay only a percentage of the cost until you reach that out-of-pocket limit, or the procedure may be fully covered.
On average, HSA owners spent $1,748 in 2015, the most recent figures available, according to EBRI’s HSA Database.
“You have to wait until it comes in, ” says Fronstin, who agrees that this is a quandary for many people. “The hardest thing is (when) people get slammed early in the year before they have money in the account.”
Many health care consumers are still used to FSAs, which required enrollees to spend all of the money saved within the plan year or it would go back to their employers. So the mindset of having to get instantly reimbursed remains.
But, he says, because your HSA money stays in the account until you spend it, that’s not necessary; you can let the money build before you use it. Save your receipts and use your HSA to reimburse yourself later when there’s more money in the account.
Tip: You can spend the HSA money on anyone in your immediate family — you, your spouse or your dependents — even if they are not covered by your insurance plan.
EBRI’s HSA Database finds that the average balance at the end of 2015 was about $1,844, and that the amount varied by age. People younger than 25 had about $759 in their HSAs, while people over 65 had about $3,623. Older workers tend to make more money and tend to save more in the first place, Fronstin says.
HSAs are supposed to make consumers more aware of how much medical care actually costs and to encourage them to seek out less expensive care. “We’ re in an era where people are having more engagement with their health care dollars, weighing the highest-quality and most cost-effective options, ” says Cathryn Donaldson, director of communications for America’s Health Insurance Plans, the national association for health care coverage companies. “It’s a great opportunity for consumers.”
Not a simple one, though. “I’ m an expert and I learn something new every day, ” says Fronstin, who has his own HSA.
Most health plans that include HSAs have online calculators to help you estimate how much a specific doctor might charge for a procedure, or how much a prescription may cost, before you actually seek treatment. And you may not even have to pay that full amount. Most insurance plans only pay the doctor part of his full charge; your bill is based only on what the insurance company pays the doctor.
EBRI says it might: The organization released a report May 25 that found that more people who belonged to a CDHP had asked about whether care was covered by the plan before getting it or asked for a generic, rather than a name-brand drug, than those who did not.
And the Kaiser Family Foundation ’s 2016 report on employer health benefits found that premiums for people in CDHPs with a savings option were far lower than all other kinds of plans, with individuals paying about $943 per year and families paying $4,289. (The average for all plans is $1,129 for individuals and $5,306 for families.)
