Healthcare consumerism can be tricky for newcomers, which is why we recently added an HSA Education section on myhealthandmoney.com. If you haven’t heard of HSAs yet, you should probably take the time to familiarize yourself because employers are trending toward full replacement benefits, meaning offering only high-deductible health plans in order to save on their benefits costs.

What is an HSA?
Health Savings Accounts (HSAs) are savings or investment accounts for medical expenses using your pre-tax dollars. An HSA is designed as a companion to a high-deductible health plan, which typically carries a minimum deductible of $1,200 for a single person and $2,400 for a family.  The tax-free savings account is what makes this benefit an HSA.  The way it works is you enroll in a companion insurance plan and then open a tax-free savings account at your local bank or one recommended by your employer or insurance company.  The option to contribute tax-free to a savings account is meant to help with out-of-pocket medical costs.

Top 3 Things Worth Considering Before You Open an HSA:

1.  Monthly Cash Outlay

One of the first considerations of an HSA is the amount of cash outlay per month you can handle.  You’ll have your premium cost, plus a tax-free contribution.   You can contribute up to $3,050 for a single person and $6,150 for a family. But you don’t have to put that much into your account if you can’t.  You’ll use this account to draw on when you have out-of-pocket medical expenses.  The nice thing about an HSA is that it rolls over from year to year so you don’t lose what you don’t use, unlike a Flexible Spending Acccount (FSA).

2.  Out-of-Pocket Expenses

Who are HSAs for? HSAs often have lower premiums than other types of insurance, but not always.  If you’re buying individual insurance they are a great way to put money away tax-free (similar to an IRA), but for medical expenses.  Obviously, if this is the only plan your employer offers and your spouse or partner doesn’t have any insurance, then you’ll need to choose your employer insurance offering.  Here’s the rub:  If someone in your family has a pre-existing condition or needs acute medical care, your out-of-pocket expenses could total $11,900 for a family or $5,090 for a single person – more than your contribution amount.  Employers are starting to design HSA plans with matching contributions or even offering employees money against their deductibles to help reduce the amount of cost sharing these plans require.  Read your policy and employee benefit statements carefully.

3.  Pricing Transparency

I know I’ve talked about this in the past, but you’re going to need to find out what medical tests and procedures cost before you get the bill if you’re managing an HSA.  Why use up all your contribution dollars unnecessarily against your deductible?  Stretch your dollars by making smart choices.  For instance, if you can take a strep test at a walk-in clinic for half the amount, why wouldn’t you?  Always ask if there is a generic equivalent for prescriptions.  And of course, don’t run to the Emergency room unless it’s really an emergency.  Choose a less expensive, quality alternative.

It looks like high-deductible insurance plans are here to stay, with and without health savings accounts.  The tax-free account is one way to plan ahead for that rainy day.

• Previous Entry: Are $250 Rebates for Seniors in Medicare’s Donut Hole Useful?
• Next Entry: Understanding What Physicians and Nurses Are Telling You