Health Savings Accounts (HSAs) have long been attractive to consumers because the money put into an HSA is not taxable. In addition, HSAs are appealing because of the low cost of premiums associated with plans coupled to HSAs, the consumer-determined input and use of these funds, and because the funds roll over year to year. A number of the plans available under the Affordable Care Act (ACA) have the option of an HSA. However, consumers thinking about changing to or enrolling in a health plan with an HSA should do their research, as health care reform has led to some changes in HSAs. In addition, a non-taxable account may sound great, but consumers should be aware that an HSA will only be beneficial if used correctly and under the right circumstances. Consider these three questions before choosing an HSA.
- How often do you see primary care physicians or specialists?
- Will you need to use the money in your HSA for something else?
- Will you actually use the HSA?
If you are the type that likes to see your doctor regularly, read on. Health plans with HSAs are known for being coupled to high deductible health plans, which have high cost-sharing (i.e. deductibles, copays, coinsurance), so visiting the doctor may be costly on this type of plan. HSA-associated plans tend to have coinsurance, which differs from copay because you pay a percentage of the cost for a provider visit, rather than just paying a flat fee. Coinsurance fees could add up quickly if you see your doctor or specialists multiple times per year.
HSA owners can withdraw their funds, without being subject to taxes and without advance approval from their insurers, at any time for qualified and documented medical expenses. In the past, these medical expenses included non-prescription medications. Prior to the ACA, an HSA owner who withdrew his or her funds for non-qualified medical expenses before the age of 65, was subject to a 10% early withdrawal penalty.
The ACA has changed things a bit. Since 2011, it has increased the early withdrawal penalty for non-medical expenses from 10 to 20%. In addition, HSA funds can no longer be used to buy over-the-counter drugs without a doctor’s prescription; the only exception is for insulin. In essence, the ACA has tightened the reins on which expenses can be paid with HSA funds.
HSAs supposedly help consumers learn how to be financially vigilant against excessive health care expenditure. Having an HSA may save you money, but only if you are willing to do some work. It is only worth it to have an HSA if you are willing to take the time to figure out how much you’ll need for medical expenses—and if having a high-deductible plan is worth the limitations to how you can spend your HSA or the higher cost sharing you’re likely to encounter.
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