Feeling pinched by your high deductible? Make sure you're taking advantage of savings options to curb medical costs.
The cost of health insurance goes up every year, whether you use it or not.
A 2010 study from Hewitt Associates found that total health care premiums have more than doubled in the past nine years, and that the total amount employees pay for medical costs -- including both out-of-pocket expenses and employee contributions -- have more than tripled in that same time period.
What is a health savings account?
If your health plan's premium or deductible is going up, it could be worth your while to look into a health savings account (HSA), which is essentially a savings account for medical and dental expenses.
You've probably heard of a flexible spending account or FSA, which lets you save pretax dollars to pay for medical costs not covered by your insurance plan. HSAs are similar, but you don't lose any unspent dollars at the end of the year (it stays in the account for future use).
The catch is that you have to be eligible to open an HSA, which means being enrolled in a high-deductible health insurance plan. In 2011, the IRS required a minimum annual deductible of $1,200 ($2,400 for families) to be eligible.
Advantages of a health savings account
A high-deductible plan can save you some cash, but remember that you have to cover all expenses up to the full deductible. If your plan has, for example, a $1,200 deductible, and you know you can easily pay that amount if needed, a high-deductible plan with an HSA is worth considering. In exchange for your willingness to self-insure up to the deductible, you'll usually have lower monthly premiums.
Here are a few key points to know about HSAs:
- HSAs have contribution limits. The IRS sets the limit each year. In 2011, for example, the maximum HSA contribution increased to $3,050 ($6,150 for families).
- HSAs can cover retirement medical expenses. Unused dollars stay in the account, and if you don't need it sooner, the money in your HSA can be used to pay for medical expenses in retirement.
- HSAs can travel. Even if you leave the company or drop your plan for another plan, you can still use your account to pay for eligible medical and dental expenses. Note that to continue to make contributions, however, you'll need to be enrolled in a high-deductible health plan.
If you rarely go to the doctor for anything more than a check-up, a high-deductible plan with an HSA can offer big advantages. Shop around for plans and run some numbers using your medical expense records from the past few years to see if an HSA might be right for you.