I can’t say that I blame you. HSA‘s are relatively new and still evolving, but the basics are sound and worth thinking about. I know, I know, we all want to go back to the days of cheap and fabulous cover-everything- imaginable health plans but no, that’s not going to happen. You know it’s not.
So we have to take a good hard look at what is possible, what is actually happening, and how we can make it work for us:
- What are we really trying to accomplish with health insurance, anyway? The real financial risk we face today regarding our health care is the stunningly expensive major medical expense claim. And that is what the HSA approach is all about. You pay your minor health expenses; your HDHP pays for the catastrophic expenses. And keep in mind that many high deductible health plans have considerable preventive benefits.
- Doesn’t it make more sense to pay higher premiums and then get lower deductibles and co-pays and Rx benefits? Not really. Remember, you buy the insurance and hope to never need its big claim coverage. The coverage is there in case – but you don’t want to use it. You don’t get mad because you didn’t have that massive stroke! And many of us never do use the catastrophic coverage we pay so much for. So a lot of our annual premium money is spent for peace of mind and maybe a few hundred dollars worth of office visits and meds. Again, we can pay the smaller bills ourselves, especially with the lower premiums afforded by HDHP’s.
- What’s really the biggest benefit of the HSA? Here we go: an HSA creates the opportunity to offset the amount of premium dollars paid out over time with tax-free dollars, dollars that are growing with compounded interest on a tax-free basis. This is a very good thing!
- What mistake do we make when deciding not to go with an HSA? This is important and has more to do with misunderstanding the idea behind the HSA than it does with being misinformed or resistant to change. An HSA is not a traditional health insurance plan. Don’t compare benefits and premiums with this approach. An HSA gives you and your family a way to save and grow tax-free dollars, with compound interest, over a long, long period of time. Considering that you will pay for health insurance at least until age 65, in one way or another, long-term thinking is especially critical here. Find a good high deductible health plan with preventive benefits you will actually use, set up your HSA and off you go!
- Do I get to choose my own doctors? Yes, of course you do. This is not an HMO (but really? aren’t all the acronyms awful?). You are free to use an HSA with any doctor or hospital you choose. And keep in mind that most insurance companies offering HSA-qualified plans have organized relationships that offer significant savings when you elect to participate in their preferred provider networks (PPO’s).
- And exactly who could incur the qualified medical expenses my HSA will cover? You and your spouse, and all dependents claimed on your tax return.
- What kind of records do I have to keep now that I am HSAing? It’s not so terrible, really. Keep records that show that your distributions were used exclusively to pay or reimburse qualified medical expenses; the qualified medical expenses were not previously paid or reimbursed from another source; the medical expenses had not been taken as an itemized deduction in any year. These records are kept by you with your tax files. Do not send them in with your returns.