‘Tis the season of open enrollment and if you are like me, you’re trying to figure out what you’re going to do about your health insurance for the coming year. On top of choosing the right coverage, you also have to decide what additional health savings plan works best for your situation.
Health Savings Accounts (HSA’s), Health Reimbursement Accounts (HRA’s) and Flexible Spending Accounts (FSA’s) are gaining popularity with employers (especially employers with younger and healthier workforces).
Many companies are offering their workers the option of enrolling in an HSA or similar account instead of the usual HMO or PPO.
The Health Savings Account (HSA)
An HSA gives you a tax-exempt savings account to pay for your own health care expenses. They are different and operate differently than how other online savings accounts work.
The money you don’t spend in one health plan year rolls over to the next.
You are also enrolled in an HDHP (High Deductible Health Plan), in which your insurance company will only pick up the tab for major health care expenses (including types of preventive care, maternity care, and pediatric primary care).
HSA’s have risen in popularity because of low premiums. In a traditional insurance plan, you pay high premiums up front; in the HDHP, you pay lower premiums and essentially assign the savings to your own health care expense account.
HSA Contribution Limits
For 2020, individuals can now put up to $3,550 per year in an HSA, families $7,100 per year. The money grows tax-deferred and distributions are tax-free (if they are used to pay for qualified medical expenses). While the $50 self-contributing and $100 family contribution increases year-to-year might seem minor, they increase your savings account with a barely noticeable rise in your contributions.
For 2021, the minimum deductible permitted on an HDHP will remain at $1,400 for individuals, and $2,800 for families. The maximum out-of-pocket limit is $7,000 for individuals and $14,000 for families. The HSA deduction will increase slightly to $3,600 for individuals and $7,200 for families.
You can even invest in HSA assets. If you’re 65 or older, you may withdraw money from an HSA for any reason without tax penalty.
The Health Reimbursement Account (HRA)
While an HRA is a tax-advantaged account like an HSA – the account savings grow with time – the assets in an HRA don’t belong to you. They belong to your employer, and they revert back to your employer when you leave your job.
The HRA is essentially a favor your employer does for you – a reimbursement account rather than a true “asset” in your possession.
The maximum contribution to the plan, made by your employer is $1,800 for 2020 and 2021.
The Flexible Spending Account (FSA)
With an FSA, you deduct pre-tax dollars out of your salary to pay qualified medical expenses. You can designate an FSA for your own health care expenses or for those of a dependent.
For 2020 and 2021, the maximum employee contribution to an FSA is $2,750. If your plan allows carryovers, you can carry $550 forward from either 2020 or 2021.
But, most FSA’s are “use it or lose it” – at the end of the plan year, the money left in the account doesn’t roll over into the next year. Employees tend to minimally fund FSA’s, as a result, although they can be used in conjunction with HRA’s.
If you have questions about HSAs, HRAs or FSAs, why not speak with a financial or insurance professional as well as your human resource officer? It’s wise to get as much information as you can before making the switch from an HMO or PPO.
There has been a new healthcare alternative entering the market in the last several years, like Medi-Share. The idea of these cost-sharing programs is simple.
Every month, members pay a contribution into a savings account. When a member of the program has medical bills, they submit a request to have those bills covered by the money in the accounts. If it’s approved, those bills are paid from other members’ savings accounts.
Just like with a traditional health insurance plan, there is a set amount you’ll be required to pay before you the plan kicks in. In the case of Medi-Share, there is an amount you’ll have to pay out-of-pocket before you can submit a request for assistance. This limit could be anywhere from $500 to several thousand dollars.
One of the most notable advantages of participating in Medi-Share is it can be much more affordable than the alternatives. You can base your monthly contributions based on the benefits of the program you need for your family. It’s not health insurance, but it can help combat the expensive costs of healthcare which could drain your bank account if you’re not careful.
Choosing The Right HSA Account For You
If your employer doesn’t offer an HSA account option, it’s your duty to find an account. If you have a health insurance plan with a high deductible, then you may qualify to open one of these accounts.
Just like with every other major purchase or investment, it’s vital you do some comparison shopping before you pick one of them. Every HSA administrator is going to have various fees and policies. There are several various factors you’ll need to account for when looking for the best health savings account.
One of the first factors to look at when shopping around for an HSA account is the fees. Some accounts have monthly fees while others only charge fees per-transaction. Some companies have fees to open an account or to transfer money to an account.
Just like a traditional checking account, some banks are going to charge you at a drop of a hat, while others don’t charge a monthly fee.
The next most important thing to compare is the investment options. Some HSAs are basically a savings account, while others have investment options. If the account is a savings-type account, then it will be insured by the FDIC. However, if it’s an investment account, it probably won’t have any protection.
How do you want to access your account? Most accounts have checks or a debit card you can use for medical expenses. They make it very simple to use your money. Other accounts (most older ones) require a disbursement and reimbursement form, which can be annoying for a lot of account holders.
Best HSA Accounts
There are dozens of different places you can open your HSA account at. I have only included three of them on this list. If none of these suit your needs, don’t worry, there are plenty of other options. This will hopefully give you an excellent place to start your search.
The reason Lively is the first on our list is because they have no monthly fees. Also, they don’t have any opening fees. Although, if you decide to use the TD Ameritrade, you will pay a whopping $2.50 fee every month.
While speaking of fees, you’ll face fewer of them with Lively.
They don’t charge fees for using your debit card, for accessing statements, over contributing to your account, and several others.
HSA Bank tends to be one of the best options. There are several reasons HSA continues to rise to the top. One of those is their low monthly maintenance fees. They only charge $2.50 a month, which is much lower than most other banks on the market.
You can get the fee waived if you have a balance over $5,000. Additionally, there are no set up fees, but there are a few banking fees, most of which you can easily avoid.
Another advantage of HSA Bank is their investment options. They have a self-directed option through Ameritrade. You can choose some of their pre-selected funds with no trading fees.
Health Savings Administrators
Health Savings Administrators started in 1996 when they were a medical savings account administrator. In 2004, after the passing of legislation, they switched to health savings accounts. Currently, they have over $700 million in investments from clients across the country.
They don’t require a minimum balance or have an opening fee, but they do have a $45 annual fee. One of the advantages of Health Savings Administrators is their many investment options.