Few decisions are as important as picking your health insurance.
Yet every enrollment season, people nonchalantly pick the plan they have always had, missing out on savings, for fear of wading through the alphabet soup of insurance policies.
But we only get one shot at insurance changes during open enrollment and after that, we’re on our own (barring a qualifying event). So it’s wise to evaluate all plans so you aren’t stuck with one that doesn’t work for you.
One plan that is inexpensive but regularly gets overlooked is the High Deductible Health Plan (also known by HSA). And this article will help you understand what it is, how it benefits you, and how to evaluate if it’s right for you.
But before we start let’s get a couple terms out the way with this health insurance refresher.
Premium – how much money you MUST spend every month regardless of if you use insurance or not.
Deductible – how much you pay for a covered service before the insurance ‘kicks in’ and pays for some or all of it.
Maximum out of pocket – the most amount of money YOU can expect to pay in a year for covered medical expenses
Got the gist? Now we are ready.
What’s the deal with an HDHP?
A high deductible health plan (HDHP), is a health insurance plan that allows enrollees to pay a lower monthly premium for their health care services. In return, enrollees pay a higher deductible than a traditional health plan.
In a nutshell, HDHP lets you pay less money monthly, and when you see the doctor, you pay the cost out of your own pocket up to the deductible. Once you reach the deductible, the insurance pays for some, most or all of it.
But paying out of pocket before the deductible is a raw deal. So to helps us to save and cover the costs, the government allows a special tax-advantaged savings account (an HSA) to accompany the plan. And pre-determines each year the maximum amount we can contribute to these tax-advantaged accounts, with the current being $3550 for single and $7100 for families.
If you are used to only paying a couple bucks of copay at the doctor, then at first glance, you might wonder who would want this plan. Paying a couple hundred instead of less than 50 upfront to your doctor sounds terrible.
But HDHPs popularity has grown steadily over the last decade, with the number of enrollees increasing from 3 million in 2006 to over 20 million in 2016. And employers love it because of the lowered employer expenses to offer that plan.
But it’s not just them, enrollees love it too.
Here’s why people love it
- It puts you in control of your health expenses – If you don’t visit the doctor for an issue then you don’t pay anything. So if you are someone who only visits for your preventative care, and rarely ever gets sick then you save with having a lower premium.
- HSA allows you to put in money before taxes, have it grow in interest tax-free and the money can be withdrawn at any time tax-free – if used for medical expenses that make it a triple tax advantage account.
- Companies help you save for your health care by offering to fund to your HSA as incentives to employees for using HSAs – that means more free money!
- Same coverage as more expensive plans. Preventative treatments like annual physicals, pap smears, and maternity care are still 100% covered
- Distributions are tax-free for medical expenses, dental expenses, and prescription drugs incurred for you, your spouse, or anyone you can claim as a dependent on your tax return (even if they are covered under different insurance). So even if you didn’t have an expense this year, you can use it for your spouse or dependents.
- Insurance premiums are also tax-free if for long-term care, or to cover premiums while unemployed. – lost your job? HSAs can help with your insurance
- HSA funds roll over from year to year allowing for the accumulation of tax-free savings, potential retirement savings, and available for future medical use.
- HSAs are FDIC insured just like a regular bank account and can earn interest – no losing your money
- HSAs allow funds to be invested – if you so choose -which allows for even higher growth – getting your HSA money working for you.
That’s 9 reasons why folks like them.
With the major reasons being savings from a lower premium (especially if you only visit the doctor for annual check-ups) and getting free money from your company.
But just because there are great benefits, doesn’t mean it’s great for you.
Evaluating if it’s right for you
The HSA can be an effective tool but your situation determines if it is right for you. These few questions can help you decide, and if you can answer yes to each of them then an HSA might be a good fit for you and your family:
- If you had a large emergency i.e. needing surgery right now, would you be able to pay the deductible?
Note: you have time to save the deductible over the course of the year, but having the deductible already saved gives you a better safety net in case something catastrophic happens early in the year (before you accumulate money in the HSA). if yes, then an HDHP is still possible.
- Are you comfortable paying more than $50 at the doctor if you have a non-preventative visit?
Note: You will be paying upfront and out of pocket for non-preventative doctor visits. So if the thought of paying more than a few bucks when you visit makes you sick, then do a plan with just a copay. If not, then an HDHP is a still possible option.
- Are you able to relatively estimate the cost of your healthcare?
If you know something is coming up, like the birth of a baby or a particular surgery, then it’s easier to plan with an HDHP.
- Are you willing to price check the cost of health services?
Since you will be paying out of pocket up front, it would be in your best interest to source out the most affordable services so you can save money on the deductible (and your pocket).
- Are you comfortable with having another bank for your HSA?
Some companies require enrollees to use their approved bank/provider and will not allow enrollees to use a bank of their choice for the HSA. And the limitation to that is the investment options may be limited. If that doesn’t matter to you, then an HSA could be a good option for you.
- Are you willing and able to pay the maximum out of pocket? We can estimate all we want but if the worst-case scenario happens and you have to pay the maximum amount will you be able to make that payment? This goes for traditional plans and HDHPs as well.
Of course, every company plan is different on the costs so always examine the offerings and pick the best one that meets the needs of you and your family.
Many people don’t give the HSA a second glance because it’s new. It doesn’t follow the traditional PPO that we are used to so it appears confusing and doesn’t use copays and feels expensive to pay out of pocket up front. But there are so many benefits to the HSA that can far outweigh that ‘inconvenience’ with the right plan. Like using your HSA to boost your retirement savings.
You don’t have to dread open enrollment.
And you don’t have to miss out on significant savings because it feels easy to stick with what we already have. Evaluating all the options doesn’t have to be hard or confusing. It can be somewhat fun – at least as fun as insurance can be.
So even though it’s not open enrollment now, spend some time to take a look at your company’s health care offers. Now is the time when you are free from the pressure of making a decision and can ask your coworkers, friends, or family about their experiences without time constraints.
Don’t be basic. Health care is expensive enough as it is. Look at all your offerings. It could save you hundreds per year.