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Today I’ve got a guest post from Dora at Thoughts On The Money. Dora is a CPA, Certified Financial Planner™ and author of How Ally Found Her Financial Freedom: Ally Found It – So Can You & Jake’s Financial Transformation. Dora has over 30 years in accounting and taxation. Her career has evolved through work experience at a combination of public accounting firms and large corporate tax departments. Dora will be proving an overview of her experience with High Savings Accounts or HSA. Enjoy!
Hopefully, you’ve heard of a Health Savings Account (HSA) by now. With regard to medical insurance options, they’re growing in popularity with both employers and individuals. I switched over in 2016 after thinking about it for two years. As a Certified Financial Planner™, I recommend making the HSA the third layer of retirement planning after 401(k) and IRA contributions.
I won’t lie – it was confusing at first and I had to ask questions for 20 minutes at my employer’s benefits showcase. My husband and I are in good health with no serious chronic medical issues so I took the plunge. Neither of us takes daily medication and hardly go to the doctor. Instead of paying a high premium with no lasting benefit, I wanted to see how I could make this work.
The High Deductible
To be eligible for an HSA, the insured must be enrolled in a high-deductible health plan (HDHP). I think this is what scares most people away but until you know all the features, it shouldn’t be banned from the possibilities.
The HDHP is a regular insurance plan with in-network coverage and out-of-network coverage. After the insured’s deductible is used, they offer the typical percentages that split coverage between the plan and the insured (e.g., 80/20 or 90/10).
The deductible for the HDHP depends on the individuals covered. The three choices are Self Only, Self Plus One, and Family. My deductible is $3,000 annually. This sounds high for one year but if that amount were used in full, the cost would probably be the same considering the premiums paid on a regular insurance policy.
The HSA gets funded by employer contributions and by payroll deductions. Find out the details on this beforehand. Not all employers contribute, so determine if you can fund the account with salary deductions only before taking the leap. The HSA pays for the plan’s deductible, co-pays, and out-of-pocket amounts. My employer contributes $125 a month and I’ve chosen to contribute $100 per paycheck. It’s all tax-free. The HSA can be used for anything listed in the IRS’ Publication 502. Here’s where I can measure some differences.
My first choice of treatment is acupuncture. Acupuncture has never been covered by any regular health policy. In the past, my only option was to anticipate my acupuncture appointments and put that money into a Flexible Spending Account (FSA). No problem there as the FSA is pre-tax money. The troubling part was that I had to estimate my acupuncture appointments in November or December of the previous year. Are you able to pre-plan doctor appointments? Me either. Some years I had too much, some years I was short. With the HSA, I don’t have to guess way in advance.
When I go to an acupuncture appointment now, I hand over my HSA debit card and pay for the appointment. I don’t have to worry about appointments that I’d projected but wound up not needing. I don’t have to get stuck paying with after-tax money if the FSA balance was short. And, before the FSA carryover allowance, I would have to scramble to use up my FSA balance before the end of the year.
Preventive care is covered 100%. Getting an annual physical or other diagnostic check-up is free. There’s no co-pay or deductible for preventive care.
Non-preventive medical care is not covered by the basic plan until the deductible is met. That means using $3,000 of the HSA until the plan coverage kicks in. That sounds intimidating to handle, even if you earn a comfortable salary. I know what it’s like to pay in cash. Many years ago, I paid $400 for a specialist outside of my policy’s network to get a second opinion. (It was expensive, but worth it.)
Paying out of the deductible almost feels like paying with after-tax cash, but stay with me. Here’s the pleasant shocker. If your doctors are in-network, you will not be purging your HSA to have a visit. In-network doctors negotiate a visit fee with the insurance company. Therefore, you won’t get socked with a $400 or $500 fee draining the HSA, it’s more like $85 or $90. My fee for a non-preventive recommended procedure was about $96. An upcoming doctor appointment that I just scheduled showed an estimated fee of $86.
But all the good doctors are not in-network, right? Wrong. All my doctors are in-network, I didn’t have to switch to a new unfamiliar doctor.
It’s sounding better, right?
Working Towards The Deductible
From my first day with the new arrangement, I planned on working up to the $3,000 deductible. With that balance in my account, I can sleep soundly knowing that if we need medical care, I can pay the full deductible out of my HSA and let the insurance kick in.
Another revelation was learning about the catastrophic coverage. While I’m enjoying all the benefits of the arrangement, the HDHP offers catastrophic coverage. My maximum out-of-pocket per year is $6,850. Again, it’s not a light sum, but I will not go bankrupt due to a disastrous malady. The plan covers 100% of eligible medical expenses after the maximum out-of-pocket is reached. Again, we’re talking about serious misfortune, which is statistically unlikely.
After accumulating $1,000, the insured may transfer money to a choice of investments.
How much I’ve invested so far:
I’m 18 months into this plan and have a $4,200 total balance. $3,000 is invested in Vanguard’s Dividend Appreciation Investor fund (VDAIX). The fund pays quarterly dividends and the monthly investment fee is $2.00.
Invested amounts from traditional insurance: $0.
The plan encourages the insured to compare prices using their online portal. This has been largely criticized in some material I’ve read. Some have expressed doubt that individuals will shop around for the best price when they are in medical distress.
The information also allows an individual to evaluate which procedures are necessary. Not all tests recommended by a doctor are necessary. Personally, I like to make my own decisions, but not everyone is as independent-minded as I am. Most will listen to what a doctor says, and that’s that, therefore, the self-evaluative aspect may not be a useful benefit.
Another disparaging point was that medical treatment will be delayed to avoid using the HSA balance or because the HSA balance is inadequate.
I am thoroughly pleased with my HSA and the benefits offered. I haven’t neglected my health care or been forced to postpone treatment. Best of all, the $3,000 deductible is covered and the account will stay with me forever for future medical care.
Getting used to the billing was confusing and I knew I would be making many phone calls to figure it all out, but now that I’m into the second year, I know how to work the website portal and pay the claims online.
I always have the choice to switch back to a traditional medical plan. For those that are skeptical, you are not locked in for life.
Check out other guests posts here.