Back in August of last year, I wrote an article here that asked if you should you switch to a Health Savings Account.This article was popular – and garnered some controversy. I think the controversy was due to the fact that there is still a large percentage of the population who are misinformed on what a High Deductible Health Plan with a Health Savings Account(HDHP/HSA) really entails.
To review, this type of plan consists of a high deductible amount – for my family plan it is $3200 for in-network healthcare. After you’ve met the deductible, the insurance company usually pays 80% and the plan holder pays 20%. But there is typically a maximum out-of-pocket amount that you will have to pay each year . For my plan, and I know this is the case because I reached it this past year, it is $6000. Your plan may vary so check with your plan administrator. What this basically means is that when you have paid out $6000 for that year, the insurance company pays the full amount of your in-network healthcare services. Once again, I am talking about using in-network providers because the deductible for out-of-network providers is significantly higher. By the way, this past year I only used in-network providers.
At the beginning of each year the employee decides on how much pre-tax money they are going to contribute to their HSA account. For an individual, in 2011, the maximum is $3050 and for a family the maximum is $6150. An equal amount is taken out of each paycheck and this amount goes into the Health Savings Account which is tied to a bank. The employee will receive a debit card which is tied to this bank account and, if desired, a checkbook. When you go to a doctor there is usually no co-pay to be paid and after negotiation with the insurance company you will receive a bill in the mail. At that time you can pay for your services out of this account with your debit card or with a check.
What is the advantage of the high deductible health plan? The greatest advantage is that if you have money left in your account at the end of the year you keep it! JP Morgan, who has been administering Health Savings Accounts since their inception, reported in their 2009 Program snapshot:
68% of accountholders contributed more than they spent during each month in 2009
This is the beauty of a Health Savings Account. If you don’t use it, it’s your money to keep. And that money can compile year after year. And, just as your 401K, you can choose to invest this money in various investment options. You can also use this money for any eligible healthcare expenses including contact lenses, dental work, psychiatric therapy sessions, and a myriad of other expenses.
My first-year overall impressions
First off, I’ll say that I am not one of the fortunate ones who had money left over in my Health Savings Account at the end of 2010. This past year just happened to be a very busy one as far as my family was concerned when it came to healthcare. We are all fine but there was no money left over in the account. But, I still love the plan.
Why? Well, I feel like I have some control over my health care now. I also have much more awareness of what I am paying for and what the charges are for certain procedures. I’m not just throwing my money into a “black hole” and waiting for the insurance company to tell me how much I owe for services.
Enhanced communication with your providers
With the HDHP/HSA plan, I am taking a much more active role in my health care. And I feel very good about that. As a result, I am communicating much more with my providers. Instead of just talking about my health with my doctor I’m now asking what procedures cost. Since I’m responsible for the first $3200 since that is my deductible, I’m certainly going to ask the pertinent questions. I know that some doctors don’t like this but that’s too bad — it is my health and my money. And one thing I learned from my primary care physician is that his compensation is directly related to how much money he generates for the hospital. So, if your doctor suggests that a procedure such as a prostate biopsy be done on you, you can give your opinion and ask for another PSA test before the procedure. This happened to me this year. My urologist was pushing for me to have a prostate biopsy but I asked for another PSA test. You know what happened? My PSA count went down which meant that there was no need to have a biopsy at that time. That procedure would’ve cost $1000 (plus lab fees) for reading the results.
You must get involved
With a High Deductible Health Plan you, as a consumer, must be involved. In other words, you should keep your receipts and keep track of your payments. I have a spreadsheet that tracks all of my spending when it comes to my health plan. Since you can pay for your healthcare with non pre-tax money, you definitely want to keep track of how you are paying for your medical services. If you keep your receipts and keep track of how much you are paying with your non pre-tax money, you can pay yourself back when there are funds in your HSA account. You can simply write yourself a check but you must be able to prove to the IRS that this money was for eligible healthcare expenses. This is another one of the added benefits of a HDHP/HSA plan.
Tax benefits, funds accumulate and no “use it or lose it”
Just the fact that you have another vehicle to put pre-tax money into is an added tax benefit to the consumer. And, if you are fortunate to have funds left at the end of the year that money will continue to accumulate in your account. There is no such thing as use it or lose it funds which is what you have with Flexible Spending Accounts.
Even though I didn’t have any money in my account at the end of 2010 I still think an HDHP/HSA plan is the best way to go for me and my family. I am hoping that this coming year our healthcare expenses won’t be nearly as high as last year. If that happens, I will have a surplus of funds at the end of 2011.
So if you are considering jumping into a high deductible health plan with a health savings account, do your research. Find out the details of your plan such as what your out-of-pocket maximum is and whether it makes sense for you and your family. You just might come to the conclusion that taking control of your healthcare and your finances with an HDHP/HSA plan may be just what the doctor ordered.
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