HSA stands for “health savings account.” A healthcare insurance policy which permits this structure requires an individual to be enrolled in a high-deductible health plan (HDHP) under the current definitions published by the government. The 2019 definition for qualification is a minimum annual deductible of $1,350 for self-only coverage and $2,700 for family coverage, which is unchanged from the year before.
It is not unusual for a health insurance provider to offer a health savings account. If your plan qualifies for one and your provider doesn’t give you this option, then you have an opportunity to open a separate HSA at a local or online financial institution.
You will then receive a debit card or a set of checks which link directly to the balance in your HSA. Then you get to use the funds in the account to pay for eligible medical expenses. This structure allows you to cover the copays, deductibles, and coinsurance that come out-of-pocket when you visit a doctor. You can also use it for qualified expenses not covered by your policy, but it cannot be used to pay for your insurance premium.
If you are thinking about a change to your healthcare insurance enrollment, then these are the pros and cons of HSA insurance to consider today.
List of the Pros of HSA Insurance
1. Your HSA stays in place even if you switch jobs in the middle of your policy.
When you change jobs, or your corporation switches their healthcare insurance provider, then you can rollover your funds to a future policy assuming that it still qualifies as a high-deductible health plan. Even if you choose to retire and no longer carry the coverage, the cash is always accessible in a preponderance of circumstances. Most HSAs use checks or a debit card to access the funds, which means you can pay for your medicines and healthcare costs right away instead of waiting for a bill or asking to be repaid after the fact.
2. You can have anyone contribute to the health savings account.
When you qualify for a health savings account because you have an HDHP, then donations can come from your employer, family, friends, or anyone else. Even strangers can put money into this account for you. The only restrictions in place right now from the Internal Revenue Service are a maximum cap of contributions put into the HSA each year. This structure is similar to what you would experience with retirement and other tax-advantaged accounts.
If the contributions to HSA insurance use after-tax dollars, then the IRS allows you to deduct that amount from the gross income on your taxes each year, which offers the possibility of a better refund each April.
3. There is an extensive list of qualifying expenses to consider with HSA insurance.
The qualified expenditures that are through an HDHP are considerably diverse. Most HSA insurance policies allow you to request compensation for the operating expense for your car when driving for medical reasons. The current rate of payment is set at $0.18 per mile.
Any cost which you spend for yourself, on your spouse, or for a dependent qualifies under HSA insurance as well. This benefit occurs even if you paid a provider directly since you can request compensation for their covered expenses in some situations as well. Children under the age of 24 also qualify if they attend a college or university full-time and are younger than both yourself and your spouse.
4. HSA insurance can reduce medical expenses when there are extensive costs.
When your family achieves the maximum out-of-pocket expense for provided services with a high-deductible health plan, then your HSA insurance covers all of the additional medical services that you may require throughout the year. This amount includes any co-payments or prescriptions which receive an exclusion from the catastrophic limits found on other plans.
Although this benefit means you might spend over $13,000 during the year for your medical expenses, HSA insurance allows a family to survive a short, critical ailment while accessing financial benefits that can stop you from accumulating high debt levels over time.
5. This insurance option follows the same structure as other healthcare policies.
The composition of a high-deductible health plan is comparable to what you may already use for the other essential needs in your life, such as automotive or homeowners’ insurance. HSA insurance follows the same set of requirements as other policies as well. These options are in place to help you meet the notable medical charges that are often difficult to budget so that you will not see a lifetime of savings eliminated by a rare illness.
At the same time, there are incidental costs that you pay while also covering the premium expense of HSA insurance, which is similar to other coverage options. Although the price of an HDHP can be high for many families, these policies seek to use the same accommodations. You receive the full coverage during an emergency without a cap on benefits as in the past while still taking care of the needed incidental care requirements for daily living.
6. Employers can spend less on healthcare benefits with HSA insurance.
The cost to provide HSA insurance to employees through the use of a high deductible health plan is over 20% lower for organizations when compared to the lower deductible plans that are traditionally offered. Some policies can be structured to help workers pay less in contributions because their total expenses are more economical as well when choosing this arrangement.
Employers can then use a piece of the added savings to fund the HSA for their workers as an additional benefit. This structure works to balance medical costs since it can grow much like a 401(k) or 403(b) retirement plan or an IRA. There are network savings to consider too, since being part of the overall network produce savings of up to 50%.
7. Your HSA insurance and the tax-advantage account work together.
HSA insurance does not have the funds you contribute to the account expire at the end of the year. If you do not use the entire benefit, then you get to use the funds to create more growth within the account. Because of this structure, employers often give to this plan as they would a 401(k) or SMART IRA, helping workers pay for qualifying costs through their account instead of spending it from their paycheck.
Although it would be inaccurate to say that HSA insurance will decrease your overall expenses, this benefit does enable you to pay for medical assistance using money which is not subject to federal taxation. Any earnings that you gain through your health savings account is tax-free. This benefit applies to the withdrawals you make from the account when using it appropriately.
8. HSA insurance negotiates specific rates with local medical providers on your behalf.
Although you will be paying the entire cost for your medical services until the deductible requirements are met, a high-deductible health plan does begin to deliver cost-savings immediately. When you visit with a doctor in the HSA insurance network for your healthcare requirements, then you can take advantage of the policy’s negotiated rates for each service you receive during your appointment.
This benefit means that instead of paying the local market rate for the service, you get to pay the negotiated discount cost instead. This advantage can save you more than 30% for most services and over 50% when you need to visit a specialist.
9. You won’t pay as much for your monthly premium with HSA insurance.
Most families have the cost of their healthcare insurance deducted from their paycheck automatically each month. You cannot use an HSA to pay for this monthly premium, but the overall expense is typically lower if you have a high deductible.
When you look at the actual cost of the policy, you will save almost 40% with HSA insurance when you compare the expense to a PPO or HMO. Although this choice is a bit of a risk since a vital medical service or procedure would be expensive, most families who remain in excellent health and avoid chronic health problems manage to save some cash with this option.
List of the Cons of HSA Insurance
1. There is a maximum contribution amount that you can use with HSA insurance.
An HSA has limits in place that prevent you from placing all of your cash into this account to limit your medical expense liability. During the 2019 tax year in the United States, there is no taxation penalty for family accounts since the $50 difference is gone, but you are still limited to $3,500 in total contributions per person. If you or your spouse are 55 or older, then you can add another $1,000 to this amount.
The most that a married couple or domestic partnership can contribute to HSA insurance is $9,000 in a single year because of these restrictions. If you have significant medical costs during the year that your high-deductible health plan must handle, then it is reasonable to expect that your account could be drained by the end of the year.
2. HSA insurance does not offer timing exceptions for the care you receive.
Most HSA insurance policies operate on a calendar year instead of a rotating 12-month period. That means the coverage of your deductible begins at the first of the year instead of when you receive medical services. If you have an HDHP, then let’s use the $1,350 example to help describe this disadvantage.
Let’s say that you haven’t used your HSA insurance and now it is November. You had a great Thanksgiving meal with the family, but now your gallbladder is acting up and it needs removal to protect your health. Your deductible must kick-in first before the other benefits of your policy begin. Your health savings account can help to cover that expense.
Now the follow-up for your surgery happens in January. That visit with your doctor will go against the next deductible, even though it is still part of the same treatment series.
3. The costs of HSA insurance continue to rise with industry expenses.
If you received HSA insurance coverage over 10 years ago, then your average deductible for a family was about $1,000 less than it is today. Individual deductibles were between $750 to $1,000 on most policies. Since 2006, the total cost of receiving medical care for any reason has gone up by more than 70%. Even the employer share of providing health insurance as a benefit averages more than $18,000 per year in 2019.
More organizations are switching the burden for these costs to their workers, which means HSA insurance is more common now than ever before. Although the investment features of a health savings account can offset some of your costs, more is coming out of your pocket to pay for care than ever before in American history.
4. You need to be aware of what is and is not allowed with HSA insurance.
People who carry HSA insurance are less likely to receive preventative care through their primary-care physician even though it is usually an offered benefit. People who rely on a health savings account are less likely with their HDHP to pursue seasonal vaccinations, schedule appointments for cancer screenings, or even have their blood pressure or cholesterol levels checked.
Because the language of an HSA insurance policy can be confusing, it is imperative to look over what appointment options do not apply to your deductible. Many preventative services do not come with out-of-pocket costs, especially if you have children covered by your HDHP.
5. Using HSA insurance can lead to higher levels of medical debt.
Because families must pay a minimum of $13,300 to meet the demands of their deductible with HSA insurance before their other benefits apply, the costs can be enough to still cause a bankruptcy. Over 60% of these court filings in the United States are due to medical debt each year, even when there is an insurance policy in place providing benefits. More than 10% of households with insurance were unable to meet their obligations, which is almost double that of the general population using other forms of health insurance.
Families are also putting off medical appointments for routine care needs because they cannot afford the expense. Some are skipping their prescriptions because the cost of the medicine is too high for their budget. This disadvantage even causes some people to self-treat injuries that occur. People are only visiting the doctor when there is a true emergency, which further boosts the cost of care.
6. HSA insurance provides only a handful of deductible exceptions.
Although there are some services you can receive with HSA insurance that allow you to skip the co-pay, most procedures will require you to provide an agreed-upon amount before or after your visit with the doctor. Most payments are $40 or less, but you might be asked to pay the full amount if there are no costs charged to your deductible before seeking care. There are no exceptions to this policy, even if you visit a hospital to receive emergency care.
It may cost several thousand dollars before you begin to see any of the coverage benefits of your HDHP, which is why many families look for alternative ways to treat their healthcare issues.
7. Chronic illnesses are challenging to manage with HSA insurance.
If your doctor says that you have diabetes, COPD, asthma, or some other chronic health challenge, then trying to manage your expenses will be challenging under the structure of HSA insurance. Because you must reach the deductible for yourself and any other dependent on your policy before receiving maximum benefits, you must budget for the full medical expense each year to ensure that you can stay out of debt consistently.
Your health savings account can work to offset some of these expenses and possibly lower your tax responsibilities, but this cost requires payment from a financial resource you control. That is why the debt levels can climb quickly with this policy. Everything is a potential out-of-pocket expense until you meet your limits.
8. Employers save money because workers stop going to the doctor.
Harvard discovered that the primary reason why HSA insurance options help employers save money on their healthcare benefits is because their workers stop going to visit the doctor. Medical spending went down by more than 10% in a single year for some organizations because their employees reduced the number of care services they would access. Even when families are accessing the care they require, there are delays in service access due to the billing and deductible structures present with this option.
Verdict on the Pros and Cons of HSA Insurance
If you are a person who is in generally good health, rarely visits the doctor, and requires an annual checkup for vision, dental, and physical wellbeing, then HSA insurance is a reasonable option to consider. You will still receive the catastrophic coverage you require for an emergency without an extensive monthly premium that covers services which you might never access.
Large families, people with chronic health concerns, and those with pre-existing conditions might want to look for coverage that is more comprehensive than what HSA insurance provides. You will pay a higher monthly premium, but then your benefits will start faster than they would with an HDHP.
The pros and cons of HSA insurance are essential to review as more insurers provide this option as the sole choice for coverage in the coming years. By knowing how it works and what its advantages are, you can begin to limit the potential financial problems you would face in the future.
Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.