With the popularity of High Deductible Health Plans (HDHP), many Americans are still paying 100% for services under their deductible, with the exception of preventative care. A great way to save money and buy healthcare at lower prices would be to open up a Health Savings Account (HSA) because the money you put into these accounts is tax-free.
HSAs are available to those enrolled in a qualified HDHP ( see hsa limits for 2016 ). They allow you to use pre-taxed dollars to put into a savings account that can take away the sting of those out-of-pocket expenses that can come from medical care. An HSA also has the added benefit of rollover funds. This means that if you don’t spend all the money in your account in one year, it will carry over into the next year. This allows you to treat an HSA almost like a 401K or a 529 College Savings plan and put away money—up to $3,350 a year for an individual and $6,650 for a family, over time that is usable tax-free for qualified medical expenses.
Other than the yearly limit on funds deposited, there are a few restrictions on how you can contribute to and spend your HSA on medical expenses. Your employer can even contribute a certain amount of money to your HSA, like they would to a traditional health plan. And unlike a 401K, the account is owned by the individual and not the employer, making it easy for you to carry your HSA with you even if you change jobs.
So, how does being able to put away pre-tax dollars and being able to use them tax-free help you out in the long run? Well, pretty much to the tune of 25% or more! Your pre-tax dollars as seen on your paycheck will be able to be taken out right away and put into your health savings account meaning that more of your hard earned cash is going straight into your pocket. As well, an HSA accrues interest just like any other type of savings plan. Interest rates run between .05%-.35% depending on the balance of your account. This interest is also tax-free and, therefore, more money directly into your pocket to pay for medical expenses.
Let’s say you do end up signing up for an HSA. Now that you’ve got it, what are these “qualified medical expenses” that you can access that money for? As stated in the LA Times, “HSAs allow you to set aside money, tax-free, to spend on a wide range of medical expenses, including doctor visits, prescriptions, eyeglasses, hospital and dental care.” You can also reimburse yourself for out-of-pocket expenses from cash pay doctors, not just those covered by your insurance. Like we talked about in previous blog posts, paying cash at the doctor can get you serious discounts on healthcare services and you can use the balance in your HSA to pay for these.
The Kumba Health network is one such service where having an HSA is valuable. Because of the already lowered prices of Kumba doctors you were already saving money and time by going through Kumba, however, paying with your HSA balance only adds to your savings. As stated in our previous blog, Kumba doctors typically charge less for patients paying at the time of services. With your HSA debit card , you can pay for those services with your HSA directly and save even more on your qualified healthcare purchases.
HSAs are a great way to save money for your healthcare needs as well as saving money on the services purchased using your HSA. With most young professionals turning to the HDHP model of health insurance to save money on their monthly premiums, there are more and more of those same consumers eligible for an HSA. Many banks and insurance companies offer HSAs and related services, and, as you can see, it is definitely something to look into. Employers may even offer an HSA program through their own health insurance offerings.
Your HDHP is your best bet for emergency services or those instances where you are seriously ill, but use your HSA to save and pay for the more cost-effective day-to-day visits to cash pay doctors via websites such as Kumba Health.