Health Insurance - Part 2
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In this article, I will attempt to explain the difference between a “traditional” health insurance plan, and an “HSA qualified” medical plan,” also known as HSA’s. **
There are four major differences:
- Cost: An HSA qualified medical plan is cheaper than a traditional plan
- Bank Account: With an HSA plan, you can save $$ in a bank account, and capture the huge benefits of pre-tax savings, un-taxed growth, and untaxed use of the money when you decide to use it. There is NO “use it or lose it.” Your savings is yours forever. If you’re not saving into this bank account you are NOT utilizing the full power of an HSA!
- NO Copays: You won’t have copays for office visits or pharmacy when you have an HSA qualified medical plan. With a couple of exceptions, you will pay full price, and your cost will apply to your deductible and out of pocket maximum.
- Aggregate Deductible/Out of pocket Max: If you have dependents on your HSA medical plan, you will have an “aggregate” family deductible.
So let’s go over these four differences:
1. Cost: Typically an HSA qualified medical plan will cost you less! So I suggest - take that zsavings and pay yourself with it! Put it in your “HSA.” (Health Savings Account)
2. HSA Bank Account. If you are participating in an HSA qualified medical plan, you are allowed to contribute money into a bank account you set up (or your employer sets up) for yourself and your taxable household. The advantage is that you will put money in BEFORE it is taxed! So you won’t pay Federal Income Tax on the money you put into your own HSA (Health Savings Account). Two ways: through pre-tax payroll deduction at work with an employer-sponsored HSA plan, OR if you are self-employed or a business owner, you can write off your contribution to your HSA and take the deduction at tax time. (consult a tax specialist for details) If it’s just you on the medical plan, you can contribute up to $3450/year (and an extra $1000 if 55 or older). If it’s you and any dependents at all, you can save up to $6,900/year (plus the extra $1000 if 55 or older). This is for 2018. These contribution limits increase each year. ***
In other words, because of the savings on your taxes (about 20%), you give yourself $3450/year, but it costs you about $2730! The money never goes away. It grows tax free (most banks will allow you to invest it in the market once you accumulate a threshold such as $2500), and you won’t pay taxes on it if you use it to pay for qualified medical, dental and vision expenses. You can use it for anyone in your taxable household, regardless of whether they are participating in the medical plan. If you retire with it at 65, the rules change and you can use it to pay for Medicare premiums, and much more too! So in short: Save pre-tax, no taxes on growth, no taxes when you use it, it’s yours forever, spend on qualified expenses, save and use it as part of your retirement.
3. No Copays: You know that with a traditional plan – you go to the doctor and you pay a copay, right? Maybe $25, for the privilege of walking in the door. That $25 does not apply to your deductible. Then you must pay additionally for other services rendered (ie any tests, xrays, etc.). Those charges are typically billed separately and subject to your plan deductible.
With a HSA qualified medical plan – you go to the doctor, and you will pay the full price for the privilege of walking the door, and like a traditional plan, other charges will be billed separately and subject to your deductible.
POINT: With an HSA, there are no “copays.” So you will pay for the full cost of that office visit, whether with your primary doctor, a specialist, a chiropractor, massage therapist, physical therapist, OBGYN, etc. However in most cases your ancillary charges are covered in the same manner as a traditional plan. With this scenario every dollar spent goes towards your deductible.
Same with pharmacy, you will pay full price for your medications, and your costs will apply to your deductible and out of pocket max.
Exceptions: On an HSA medical plan, your annual check-up is covered at no cost. With an HSA, there is a list of about 120 generic and very commonly used maintenance meds (for diabetes, cholesterol, BP, osteoporosis, mental health and asthma), that are NOT subject to deductible!
4. Aggregate Deductible: If you have enrolled any dependents on your HSA qualified medical plan with you, then you must combine your individual deductibles together (for only two of you). For example, let’s use an example of a $1500 deductible. In a Traditional plan, each family member has their own separate $1500 deductible that must be satisfied. Benefits will start being paid at coinsurance, once two separate $1500 deductibles are met.
With an HSA plan, your annual family deductible is now $3000 total for everyone on the plan. So no matter who gets sick or hurt, whether it’s one person or more, your family must reach $3000 before your deductible is satisfied for EVERYONE on the plan, and all family members will now have benefits paid at coinsurance.
HSAA VS. TRADITIONAL, WHAT IS RIGHT FOR YOU?
When is it best to use a Traditional Plan, and when is an HSA best for you? My suggestion, as with my prior article, is to consult with a trusted insurance agent or broker, who can help you decide what is the right decision for you and your family. HSA’s are gaining in popularity as people have begun to understand and harness the tax advantaged savings inherent to these plans. They may be right for you. Do your research and if you decide to go with an HSA qualified medical plan, take a consistent and disciplined approach to saving, and take advantage of that bank account!
** This is a very brief explanation of HSAA qualified medical plans, and not meant as professional advice. To keep this article brief, it does not explain all aspects of traditional or HSA plans. Consult your insurance agent to discuss what is right for you.
*** Contribution rules: You must be participating in an HSA qualified medical plan to contribute to your HSA. Also, you cannot contribute to your HSA account if you are: On Medicare, on Medicaid, have another Traditional plan in place, on Tribal coverage, on Military coverage. See your insurance agent for a complete list of contribution rules.