At first glance, it can seem like a great deal. In exchange for picking up a larger share of their own health care costs, employees pay lower
insurance premiums and are allowed to use pretax dollars to pay out-of-pocket costs. But many consumers embracing the plans have discovered there are pitfalls aplenty, including out-of-pocket expenses they cannot afford.
To open a health savings account, you must be enrolled in a qualified health insurance plan with a deductible of at least $1,200 for an individual or $2,400 for a family.
In return for accepting the higher deductible, you are allowed to deposit pretax dollars in the H.S.A., which are used to pay your out-of-pocket medical costs. This year, singles may contribute a maximum of $3,050 to an H.S.A. and families can deposit up to $6,150.
Earnings on the account are also tax-free, and no taxes are paid on withdrawals used for qualified medical expenses.
More than
10 million people are enrolled in high-deductible health plans linked to health savings accounts, up from 6.1 million in 2008, according to a recent survey by America’s Health Insurance Plans, an industry trade group.
Companies like the plans because they require workers to shoulder more of their own health care costs, and the premiums for high-deductible plans, to which firms contribute, are far lower than for traditional policies.
If workers must pay a bigger chunk of their own costs, the argument goes, they will become wiser consumers of health care. And since the balances in H.S.A. accounts roll over from year to year and travel with an employee from job to job, they can help finance individuals’ health care costs during
retirement.
Since Philip Derrow, owner and chief executive of Ohio Transmission Corporation in Columbus, switched to a high-deductible H.S.A. plan for himself and 300 employees four years ago, his firm’s health insurance premium costs have increased by an average 2 percent or so a year, compared with 10 to 12 percent increases in previous years.
“This was by far the most affordable option for us, and I really believe it makes us better health care consumers,” Mr. Derrow said.
Critics have been less enthusiastic about H.S.A.’s, worrying that high-deductible plans work only for young, relatively healthy people who do not spend a lot on health care anyway. When sick people are faced with paying high out-of-pocket costs for medical bills, they simply go without the care they need, experts note.
What’s more, shopping for the best health care prices is difficult for consumers — sometimes impossible, because doctors and other health care providers don’t readily disclose prices.
And the new health care law may make high-deductible plans less attractive if new rules, yet to be announced, require lower deductibles and impose other restrictions.
If you’re in or are about to join an H.S.A., here are some ways to make the most of your decision.
SHOP FOR LOWER FEES Prepare to be nickeled-and-dimed. Banks and other financial institutions that offer H.S.A.’s often charge a one-time set-up fee of $25 to $75, along with an annual fee in the same range. Charges for checks, debit card and automated teller transactions can run a dollar or two each. Of course, the usual big charges may apply for overdrafts or bounced checks.
In addition, depending on where you park your health care money, you may pay an
investment or so-called 12b-1 fee on top of the banking fees.
These charges may seem small, but over time they can add up. Shop for the financial institution with the lowest fees, and keep as much money as you can in your account to pay medical bills.
Most employers who offer an H.S.A. option contract with a single financial institution and pick up the administrative fees for any employees who set up their accounts there. This choice is often your best bet. But you are not obligated to use that institution. You’ll still want to compare what your employer is offering with other big H.S.A. providers like H.S.A. Bank or
Wells Fargo to make sure the fees offered are at the low end of the spectrum.
CHOOSE SAFER INVESTMENTS Almost everyone with an H.S.A. wants to put the money in a haven. That’s why most employers provide plans with low-interest, conservative savings or money market accounts. These days most of those accounts offer little more than a percentage point in interest. You should expect to earn at least that much — after all, it is better than nothing.
Other providers, like Fidelity and Wells Fargo, offer a range of investment options for H.S.A.’s, including
stocks and stock
mutual funds. These aggressive strategies should probably be reserved for people who have accumulated a fair amount in their accounts and do not plan to spend it in the short term, said Edward Kaplan, national health practice leader at the Segal Company, a benefits consulting firm.
For most people, there is no need to be swayed by the fancy marketing materials promoting dozens of H.S.A. investment options when an interest-bearing savings or money market account will keep low balances safe.
EMPLOYER INCENTIVES To get employees excited about H.S.A.’s, many firms will contribute directly to your account. For example, two-thirds of Fidelity Consulting Group’s clients contribute an average of $750 per employee into health savings accounts, said William Applegate, vice president of product management at Fidelity.
In addition, many companies offer high-deductible plans that pay for annual physicals and other wellness programs. In January, the new health care law will make it mandatory for all health plans to pay for preventive and wellness services. That means if you are relatively healthy, you may well be able to dodge out-of-pocket health costs for routine care, allowing your H.S.A. balance to grow and roll over into the next year.
RECORD YOUR PAYMENTS Use your H.S.A. money only for qualified medical expenses, and always keep receipts so you can prove your expenditures. (Check your benefits office or insurance provider for guidelines.) Under the new health care law, any unqualified purchases made with H.S.A. money will be subject to a 20 percent penalty starting in January, up from the current 10 percent.
Keep in mind another change also beginning in January: over-the-counter
pharmaceuticals will no longer be eligible for reimbursement from an H.S.A. unless prescribed by a doctor. If you were accustomed to paying for, say,
Claritin or Motrin with H.S.A. dollars, you’ll have to recalculate.
COMPARE PRICES FOR CARE Although
it can be difficult to find accurate pricing information, there are some resources you will want to turn to if you are paying for more than routine care, like an
M.R.I. or surgery. Most insurance companies offer price information on their Web sites. And independent sites like
PriceDoc.com and
HealthcareBlueBook.com offer comparisons for practitioners and common medical procedures.
Mr. Derrow simply calls around for the best deal. When he was suddenly paying full price for a prescription medicine he took regularly, he said, “You can’t believe how fast I was on the phone comparing prices at area pharmacies. I had never bothered to do that before, when I knew it was simply a $25 co-pay no matter where I went.”
