Practical Matters: How to select a health savings account
Pay for most prescription drugs, physician visits and medical equipment out of one’s own pocket but have enormous medical expenses — say after an accident or surgery — covered by an insurance company. To many Americans, that seems like a fair deal.
That’s what health savings accounts offer. They’re coupled with high-deductible health insurance plans, and they’re precisely what their name implies: savings accounts used for health-related expenses.
In 2009, the number of accounts jumped to 8 million, up from 3.2 million in 2006, according to America’s Health Insurance Plans, a national association for insurers.
Contributions to the accounts are made pretax, meaning they lower state and federal taxes for the employee, and they can be made by either an employer or an individual. Further, the money can be used for medical expenses tax-free.
In 2010, the maximum contribution for a health savings account is $3,050 for an individual and $6,150 for a family. Any money unused in the accounts can be rolled over at the end of the year.
(The accounts should not be confused with flexible spending accounts, also called cafeteria plans, in which an individual sets aside money on a tax-free basis in an account to pay for medical expenses. A flexible spending account is not tied to an insurance plan, and the money does not earn interest.)
The high-deductible health insurance plans that, by law, must accompany health savings accounts have annual deductibles of at least $1,200 for individuals and $2,400 for families for 2010. The maximum amount of out-of-pocket expenses in the plans is $5,950 for individuals and $11,900 for families this year.
Because insurance premiums and out-of-pocket costs have surged over the last couple of years, the savings-account option has become more competitive with other insurance plans, said Brent Hitchings, vice president of the Individual, Small Group & Government Business Unit for Blue Shield of California.
Whether choosing the option on your own or through your employer, here are some tips to help ensure you find the combination that best suits your needs.
To HSA or not
Traditional HMOs and PPOs are good for people who are relatively healthy and spend little on healthcare — or who utilize a lot of healthcare services but have a low deductible. They also work well for people who prefer predictability; a doctor’s visit that will have a $30 co-pay, for example, and a generic prescription drug that will cost $10, for instance.
Health savings accounts, however, are good for people who want to be in charge of their healthcare costs, who want the tax advantages and who can put money away each month for expenses. The accompanying insurance plans typically cover basic preventive services, and the premiums are often lower than with traditional plans.
Paul Fronstin, director of the Health Research and Education Program for the Employee Benefits Research Institute, advises consumers to consider how often they go to the doctor and what kind of services and medications they use regularly. They should get a ballpark figure of these costs, then take into account any overall premium savings.
Services and options
The health insurance plans that come with HSAs vary greatly. Some have low deductibles and higher out-of-pocket expenses. Some offer pharmacy and other benefits.
The plans are typically PPOs. Hitchings recommends that consumers choose a well-known carrier and that they make sure their existing providers are in the network. They should also consider the deductibles and the out-of-pocket limits.
One of the “gotchas” of health savings accounts can be the plan design, Hitchings said. When the accounts first came out, an entire family often had to meet its out-of-pocket expenditures before the insurance company began paying any co-pays. Now companies offer embedded deductibles, in which it will cover a family member’s co-pays after his or her deductible is met, whether or not the rest of the family has met theirs.
Some plans also offer online account access and checks or debit cards for payment.
Investment options
One of the biggest variances between health savings accounts is the investment options. The accounts are set up much like individual retirement accounts, as an investment. Though the interest rates are often relatively low (around 1% or 2%), any money not spent on medical expenses accrues interest over time.
Consumers can either work through the companies that have relationships with their insurer or they can shop for their own health savings accounts.
Some insurers offer a one-stop shop in which the high-deductible insurance plan and the health savings account are set up through the insurance carrier. These are easier for consumers, but they often have less flexible interest rates. This would work well for people who want to access their money easily and plan to use it quickly.
Most major banks today offer accounts in which consumers can shop for better rates — there’s even an HSA Bank dedicated solely to providing this service to consumers. Working with these banks would be good for people who want to use the account as a small investment tool, as they can shop for accounts with higher interest rates and fewer fees.
Fees
Consumers should read the fine print on fees. Some accounts charge annual fees, per-check charges, account-closing fees or bounced-check fees; some insurers charge for using a bank with which they’re unaffiliated.
Where to find help
Ultimately, a broker or agent may prove useful when choosing a savings account. The “online unassisted” customers — those who shop via the Web without the help of a salesperson or insurance agent — are most likely to get a plan that doesn’t fit their needs, Hitchings says.
Employee participants should be able to get information on the plan through their employer; people on the open market can go through an insurance agent for the health plan and the agent or a bank for the savings account.
Many companies, Blue Shield included, have online tools that can narrow down plan options.
More information on HSA plans can be found at the U.S. Treasury Department’s website at https://www.treas.gov/offices/public-affairs/hsa/ and https://www.hsa.com.
