Health Savings Account Tips That Can Save You Money
Increasingly popular HSAs demand new health-care discipline
SAN MATEO, Calif., Oct. 10, 2007 - The health insurance industry faces its share of critics these days, but no one can argue that high-deductible health plans and their companion health savings accounts (HSAs) are gaining popularity as fast as MySpace. Brad Stroh, co-founder and co-CEO of Bills.com, suggests that consumers' biggest challenge with these plans is how to fund the HSA. In 2007, about 20 percent of U.S. employers offer a high-deductible health insurance plan, which is required to open an HSA, but nearly half anticipate doing so in the future, according to Hewitt and Associates. HSAs are tax-benefited accounts that allow consumers to save money (and earn interest on those savings) specifically for health care expenses. "HSAs come with high-deductible health plans, which offer health insurance coverage with a much higher deductible than an HMO. An individual deductible might be $1,000 to $2,000, and a family deductible might be $5,000 to $10,000," Stroh said. "These plans save consumers money on monthly premiums, with the idea that they invest tax-deductible contributions in their HSAs. Then, if a medical need arises, a consumer can pay qualified medical expenses from the HSA fund (on a tax-free basis) -- thus paying for health care with pre-tax dollars." Funds in an HSA roll over from year to year and can be maintained indefinitely if they are not needed. The catch is that for many people, having enough savings in the HSA to cover the deductible can be a daunting hurdle. (To understand contribution rules, see http://www.kiplinger.com/columns/ask/archive/2007/q0118.htm.) For those in this situation -- or those who are switching to an HSA for the first time -- here are Stroh's tips to help with accumulating an HSA nest egg.
- Catch every (premium) drop. When switching to an HSA from traditional health insurance, premiums may decrease. Subtract the amount of the new premium from the old premium and save the difference to start accumulating savings without any change to your lifestyle.
- Automate savings. Set up an automatic deduction from your checking account (ideally, have the savings transferred automatically from the bank account to the HSA). "Consider the savings a mandatory bill, like the mortgage or car payment -- not an optional expense that you pay if enough money is left over," Stroh suggested. "After all, your health and your financial well-being are at stake."
- Find money. Americans can be ingenious savers. Some simple methods to pinch pennies and accumulate savings include:
- Bring lunch to work once a week, but continue deducting the cost of eating out from your spending money or record it as a debit from your bank account.
- De-clutter and sell unneeded goods on eBay. If you prefer, use a listing service (available in most communities) that will photograph and sell your belongings for you.
- Really save on groceries - Watch for sales, use coupons and shop at warehouse clubs. And when you see the amount of savings on your grocery store register receipt, actually transfer that amount from your bank account to your HSA.
- Save a dollar a day, either through automatic withdrawal or by putting an actual dollar in a jar. At the end of the month, you'll be at least $30 closer to your funding goal.
- Sock away windfalls. For at least a year, throw any extra windfalls into the HSA.
- Start with the deductible. At a minimum, fund the HSA up to the deductible amount. Then, if expensive medical treatment is needed, the savings will cover the deductible, rather than needing to go into debt.
- Go one step further. Many high-deductible plans pay 80 percent of costs after the deductible is met, while the member pays 20 percent. Any balance in the HSA beyond the deductible amount can help pay additional costs in the event of a serious medical situation.
"As long as you don't exceed your annual contribution limit in any single year, there is no such thing as too high an HSA balance," Stroh said. "The money in the HSA belongs to you. It is an investment in your future health." Based in San Mateo, Calif., Bills.com is a free one-stop online portal where consumers can educate themselves about complex personal finance issues and comparison shop for products and services including credit cards, debt relief assistance, insurance, mortgages and other loans. The company blogs about consumer finance issues at http://www.bills.com/. Since 2002, Bills.com has served more than 20,000 customers nationwide while managing more than $500 million in consumer debt. Bills.com is a division of Freedom Financial Network, LLC, whose co-founders and CEOs, Andrew Housser and Brad Stroh, have been named Northern California finalists in Ernst & Young's Entrepreneur of the Year Awards.