What I Think of My Health Savings Account

The following is a guest post by Adam Zekmueller of Get Better Glasses. My company has an HSA as well -- and I LOVE it. And if you want to be creative, an HSA can do more for you than just pay for medical expenses. Now, here are Adam's thoughts.

With the annual cost of health care premiums outpacing inflation by a factor of three or four, my employer could no longer afford the deluxe health care plan to which I had grown accustomed.  So, beginning in January of 2008, all employees were switched to an HSA-style plan.  My employer now contributes $500 per year to my HSA and will match an additional $300 on a 2-for-1 basis (two dollars contributed equal one dollar of match).  I am contributing $600 of my own money each year and receiving an $800 match for a total annual contribution of $1400.  My “high deductible health plan” has a deductible and maximum out-of-pocket of $2500.

After a year on an HSA plan, I am beginning to more clearly see the benefits and drawbacks of such a setup.   I’d like to explore those in greater detail in this guest post.

Let’s start upbeat.  Here’s what I absolutely love about my HSA:

1. The HSA debit card. Whenever I make a major grocery/supply run, I separate out whatever non-prescription drugs or other medical-related items I have and pay for those on my HSA debit card.  I do have to remember to hang on to that receipt, though, should the tax man come.

2. Online eyeglasses.  I have several pairs of eyeglasses, most all purchased online for $40-$100.  With my employer’s matching contributions, it’s like getting a free pair or two of eyeglasses every year.

3.  “Non-traditional” medicine.  I can use my HSA money for acupuncture or to visit the chiropractor, something that never used to be covered by my insurance.

4. General flexibility.  I can shop around to get the best deal on an eye exam.

5. Routine, preventative visits are covered by my high-deductible-health-plan (HDHP) the same as they were under my traditional plan.  I get two physicals a year.

6. Combined with my HDHP, I know that no matter what happens, the most I’ll have to spend is the amount of my deductible: $2,500.  This is great peace of mind should something horrible occur.

But it isn’t all peaches and cream.  Here are the drawbacks I’ve found:

1.  If my life isn’t in danger, I won’t seek treatment.  I had pretty severe knee pain for about a month last summer.  I twisted my knee while out hiking.  I knew that I would have to pay out of my HSA for every dollar I gave the orthopedic doctor.  By the time I twisted my knee, I’d already spent much of the money out of my HSA and I wasn’t in a position to contribute much more.  I didn’t go to the doctor and my knee still hurts sometimes.

2.  I have consistent out-of-pocket expenses.  If anything goes wrong that costs less than $2,500 (my HDHP deductible), I pay for it.  Over the course of the year, the little things can really add up.

3. Prescriptions.  If I ever get a prescription, I have to pay for it unless those costs exceed $2,500.  Not so great if I take an average $2,000 or so in prescriptions each year (fortunately, I don’t).

All in all, I’d say I preferred the “deluxe” plan that my employer used to provide.  Everything was covered and my out of pocket expenses were minimal. But the HSA situation has some benefits and still provides tremendous peace of mind.  It works particularly well for young and healthy people like me who may not spend that much on health care.  The money contributed to my HSA is my money, and will grow over time.  Plus, after three or four years on the plan, my balance should consistently remain higher than my deductible.  I’ll really like it then.

Comments

[Carrie]

I experienced pretty much the same things when we had an HSA, except our deductible was $5K a person and we still paid about $700/month in premiums.
I didn't mind the HSA until my daughter got sick and the bills wiped out our account and we still owed $1K out-of-pocket. We spent the next few months using the account to reimburse ourselves and then if we had had another emergency there would have been no money for it in the account and we hadn't met the deductible.

[Stein]

My company moved from a regular PPO to a HDHP about 2 years ago. My monthly pre-tax deduction is so much lower than my new deduction that I actually save money in the long run. I've found that in the years that I end up paying more than my annual decuctible that the costs are basically the same between my PPO and HDHP. But, in the years that I don't end up using my whole deductible...I save a lot of money.

[Sarah]

These plans strike me as another way for your company to dump more risk onto you. It may work out great if you are lucky and have no serious health issues...not so much if you don't. And insurance is precisely for the times that you are not lucky!

(Further, it seems designed to *discourage* you from seeking preventive health care, at least anything besides the annual physicals. If every doctor's (or dentist's) visit costs you the full amount, you're much less likely to follow up a minor complaint or get regular cleanings. My visit to the doctor for a relatively minor complaint last year literally [well, within the bounds of medical predictability] saved my life. Yes, it ended up costing my insurance tens of thousands of dollars, but the care I would've required in dying of cancer would've cost a lot more than that!)

[Grant Baldwin]

I'm self-employed and got my HSA set up a few months ago. If you're healthy and have some savings set aside for worst case scenarios, an HSA is the way to go.

Good summary!

[Slinky]

I love my HSA. But then I'm one of those disgustingly healthy 20 somethings that rarely have medical expenses.

Cost of HSA plan? $3.50/every two weeks
Employer contributes? $10/every two weeks

By using the HSA option plan, I'm actually making money by having my health insurance. Mind boggling. It's the same coverage as the other plans, but with a $2,500 deductible.

I also contribute my old medical only insurance premium minus the cost of my new medical and dental to the account. So far I've used it for aspirin and other non covered medical expenses like seeing a massage therapist for my neck and hip. The only covered expense I've had is a single trip to the doctor for an ear infection, which would have been paid out of pocket anyway.

So for me, I'm 'spending' the same amount as I would have for a regular plan, but it's covering the cost of the things I actually need and use. And if I don't use the money, it'll still be there in the future when I'm older and start having health problems. Really, they make a lot of sense if you start them young and let them accumulate until you need them.

[rwh]

You're correct when you say this "works particularly well for young and healthy people like me who may not spend that much on health care". For anybody else it's not as good as a traditional health care plan. And I question whether many people can accumulate much in the account over time. In your case the account receives a total of $1400/year in contributions. If you go 10 years and spend $700/year and earn 3% annually the balance would be $8155. That's a nice sum but if you develop a condition that requires medicine, or you get married and have children with health problems (or even something as simple as braces) that would'nt go very far.

Stein: If you just started your HSA two years ago how can you state "I've found that in the years that I end up paying more than my annual decuctible that the costs are basically the same between my PPO and HDHP. But, in the years that I don't end up using my whole deductible...I save a lot of money." ??

At most you've had one year in each circumstance since you started the HSA.

[Todd]

I have come to a similiar conclusion. If you are healthy and don't go to the doctor or need many perscriptions the HSA can be a great way to build up tax free money. If you need perscriptions, go to the doctor a lot, or have kids it will probably be hard to get ahead on the account. The tax free part of the account is the greatest part of course.

[Nicki at Domestic Cents]

My husband has an HSA on top of his high-deductible health insurance plan. We choose the amount we want each year for the HSA. The year I was pregnant we amped it up. It's great to have that flexibility. Also great that we can cover any prescriptions, medications and eye care with it.

[Paul]

Don't be too quick to say HSAs with a High Deductible Health Plan aren't a good deal unless you're young and healthy. Depending on the contribution your employer makes, the deductible and your individual circumstances, they can be a good deal even if you're old and unhealthy. For our family coverage my employer kicks in $1500 per year into the HSA. Significantly, though, my employee portion of the monthly premium is several hundred dollars per month less than a traditional PPO or HMO policy. If that's the case where you work, don't forget to take that savings into account in your analysis--it's key! Moreover, the contribution I make to the HSA comes out pre-tax, accrues tax-free and, upon distribution, is tax-free. From a tax planning point of view, that's about as good as it gets. The family deductible on our policy is high--around $5000 annually--but when you do the math, it doesn't take much to accumulate a nice sum in the HSA. In four years I've accumulated nearly $20,000.

One thing we do is important for wealth accumulation: We pay "nickel and dime" expenses out-of-pocket without tapping our HSA. That really makes more sense anyway, because my wife and I view health insurance the same way we view homeowners and auto insurance. We don't need it to cover $20 prescriptions and $80 doctor office visits. We just need it to protect us from catastrophic events. If you think about your HSA/HDHP this way, you can really accumulate a nice nest egg. I suppose there are folks who can't afford to pay for an $80 doctor office visit, but if you can afford to pay for small healthcare-related expenses out of pocket, don't tap your HSA.

We're big fans of the HSA/HDHP product.

[Dibs]

My employer offers several choices and I constantly hear people who do not have the HDHP/HSA saying it is only for the single, childless, young & healthy. Not true at all. They believe children's vaccines & check-ups are not covered by the insurance portion, but these expenses are covered outside of the deductible along with adult physicals.

The employer contributes to the HSA and any unused amount rolls to the next year. My maximum out of pocket per year is $750 (assuming nothing was rolled over from the prior year), but I save over $1000 per year in lower premiums and no co-pays. Worst case senerio - I save $250. Best case - I save $1000. I can choose to contribute to the HSA pre-tax, but my contributions do not roll over. The HSA also reimburses for things that are not covered by the insurance (vision/dental over the amount paid by other insurance). My disbelieving co-workers with the similar medical expenses as my family refuse to consider the impact of premiums and co-pays when determining which plan is better. Why is there such a stigma against these plans ?

[Bill]

One of the big issues I have with the HSA concept is that you payg more for services when you pay on your own. I've had this happen a number of times the biggest being when I forgot I had dental insurance (duh) and got a quote of $5000 for my daughters braces. When I called back with my insurance info. the negotiated price was $3750 (off which my insurance covers half). That is a big discount.

You can negotiate on your own, but the ability to do so is limited. I prefer to get the negotiated rates for everything. My company has a plan that does this by having us pay the insurance company the copay and they negotiate the rate with the provider. This isn't perfect either, but it aligns the interests of the insurnace co. and the user.

[Sarah]

That "savings" of several hundred dollars a month will evaporate right quick if you ever have even a moderately serious medical condition (or suspect you have one and need some significant diagnostic procedures to rule it out). I think people are incredibly uninformed about how much procedures actually cost. A CAT scan will cost you a couple hundred, at least, an MRI significantly more than that, and bloodwork can be stunningly expensive--one of mine (which included a routine check for a cancer marker) added up to nearly $1000. And you don't get the insurance-negotiated markdown often, as Bill mentioned.

Also, just out of curiosity, is the "out of pocket" cap a real out of pocket cap, or is it like the out of pocket caps for PPOs when you go out of network (that is, the differential between the usual, customary, and reasonable fees and what your doctor actually charges does not count towards the cap)?

[Nyte]

I too absolutely love my HSA/HDHP combo. It got even better this year when the big company push came, but it was a phenomenal deal in previous years. I am in no way a healthy individual. I averaged over 600 per quarter in prescriptions alone because most of my scripts weren't available with a generic. So that right there, assuming I never went to the doctor and had a co-pay, never got sick and needed regular antibiotics etc, was 2400 per year. That doesn't even count in premiums or non-medical expenses like contacts/eyeglasses, cough medicine, etc. So the difference between nothing happening and catastrophic things happening for me were $400. So I just took the maximum I could add, divided it up into bi-monthly paycheck deductions, and peace of mind returned.

This year, the company made it's big push to the HDHP. They give us 500, + the ability to earn 150 more with wellness events. The big kicker was the switched to covering preventative care 100%, including preventative medications. My blood pressure, heart disease, cholesterol, and Omega-3 supplements are covered 100%. I swear to god it's like I won the lottery.

[elementaryfinance]

I have a flex. spending account through my employer. I really like it and although you have to be careful how you manage it, it offers huge savings on qualified costs. If you are offered this option, please look in to it. It's well worth it! Your thoughts here about the HSA is very enlightening.

[Paul]

I guess the terms of HDHPs vary, but I absolutely do get the in-network, negotiated health plan rates on all services, even if I have to pay them myself. This goes for medical services, prescriptions, everything. Those of you who say you're paying full rates, are you sure? Maybe I have a really great HDHP/HSA, but every criticism I've ever heard from anyone doesn't fit my situation. I love my plan!

[Mike B.]

If the HSA approach resulted in a lower monthly premium for the high-deductible insurance plan, I'd like it, too.

But our company switched to an HSA on 1/1/2009. The company contributed $800 to the HSA. We're responsible for the rest of the deductible and out-of-pocket payments. That's OK.

But we stll pay the same insurance premium that we paid last year. That's expensive.

To me, this is the worst of both worlds. Our costs have nearly doubled.