Episode 26 – Save on healthcare costs with HSAs
Episode transcript:
[musical intro]
Jenny
Welcome back to Fund Your Future with DRS. And today we’re kind of rolling into part two of talking about tax advantage savings accounts that can help you pay for qualified medical expenses. Today, we have Leanna from the Health Care Authority here to talk about HSAs, everyone’s favorite subject, Health Savings Accounts. So, Leanna, what is a Health Savings Account?
Leanna
It’s a tax-free savings account you can use to pay for qualified medical expenses and is a feature of a qualified high deductible health plan. Both you and your employer may contribute tax free money into the savings account to pay for IRS qualified medical expenses, such as deductibles or co-insurance, and the maximum amount that can be contributed each year is set by the IRS.
Jenny
Oh, that’s great. So, in order to be eligible to even participate in an HSA, you have to be enrolled in a qualified, high deductible health plan, also known as a consumer directed health plan. And there’s a lot of words in there. But briefly, can you tell us a little bit about what is a consumer directed health plan?
Leanna
Sure. A consumer directed health plan is a qualified, high deductible health plan with an HSA, a qualified health plan is a health plan that typically covers the same services as a PPO plan would, similar to the UMP Classic plan or a classic PPO plan. However, the high deductible health plans have a different payment structure and a higher deductible for covered services for a lower premium. It has certain rules. They have one combined deductible for medical and prescription services. So rather than having two separate deductibles, there’s one. And every member who is enrolled in the high deductible health plan must meet that combined deductible before the plan will start paying for services, including prescription drugs. Certain covered preventive care services and covered insulins are not subject to the deductible, which means the plan will pay for some services before you meet your deductible.
Jenny
So why might someone sign up for an HSA?
Leanna
Your employer makes a monthly contribution to your savings account. So, on top of any contributions you may make, your employer is also making contributions on your behalf. So, together with your lower premium and the contributions your employer makes, it could be a very good choice for you. Contributions can be made up to the annual maximum contributions allowed by the IRS, and then once your account reaches a certain dollar amount, you may invest that money.
So, you do have investment opportunities, unlike the FSA. So, right now the UMP plan allows members to invest when your savings account reaches $1,500. And once your account reaches $1,500, then you can either allocate how your investments go or you can choose to have somebody at Health Equity do that for you and manage your account.
Jenny
Okay, that’s really cool.
Leanna
Yeah. And unlike FSA accounts, contributions remain in your Health Savings Account until you use them. The entire balance rolls over from year to year and members can take that account all the way into retirement. You don’t have to spend it down. It can just continue to build.
Jenny
Oh, that’s awesome. Yeah, I think that’s, like you said, kind of the main takeaway of why someone would maybe pick a Health Savings Account is that they can rollover that balance. That’s really great. Even when you’re planning for expenses, medical expenses in retirement.
Leanna
Yes. And you cannot enroll in both an HSA and an FSA at the same time. It’s either one or the other. And so, if you enroll in a high deductible health plan with an HSA, whether you’re through PEB on the consumer driven health plan or SEBB on the high deductible plan, if you choose to enroll in those plans, you cannot roll enroll into a medical FSA.
You can enroll in a limited FSA, which we also have available through the Health Care Authority, and that will be used for your vision and dental qualified expenses only.
Jenny
Yeah, but I think this is definitely a really great option for folks to be able to pay for those medical expenses to roll that over. And like you said, maybe if you’re getting closer to retirement and you’re a couple of years out and you want to start putting money away into a specific, again, tax free account for your medical expenses in retirement, this is a great way that you can do that.
Leanna
Yes.
Jenny
And then so once you have the money in the account in your HSA, how does someone go about using that money then to pay for those medical expenses?
Leanna
They are sent a debit card by Health Equity that they can use either at their provider’s office or at the pharmacy they use, or they can also log on to Health Equity’s website and that shows them what their balance is in their Health Savings Account. And they can also, if they’re enrolled in, or logged into their Regence account, there’s a single sign on so that they can select Health Equity through their Regence account and go directly to their Health Savings Account information as well.
And by accessing their Health Savings Account, they can pay any outstanding claims from the website so they can access their money through their debit card or by going online and sending a request for Health Equity to send their payment to whichever provider has an outstanding claim.
Jenny
Gotcha. So, like you said, very similar to FSA. You can either get a debit card or you can file a claim. And you can go on through your account. Yeah, I think, again, kind of the main difference also is the vendor.
Leanna
For the Health Savings Account, it’s Health Equity and for FSA, it’s Navia Benefits Solutions.
Jenny
Perfect. So, HSA sounds like a really great program. You can rollover your money, you can just keep rolling that over every year and then continue to use it in retirement. It’s almost like a little retirement fund for your health care.
Leanna
Yes, you can use it for that. Absolutely.
Jenny
Yeah. So, are there any downsides to participating in an HSA?
Leanna
Well, I think some things to consider is that these accounts are not funded upfront like an FSA is. That means that you must have the funds in your savings account to use that money. So, even if you’ve elected to contribute $2,000 to your Health Savings Account, but you only have $1,000 in there in January, you can only use that $1,000 in January.
It’s not front loaded like the FSA is. And also, one thing to keep in mind is before you enroll in a high deductible health plan with an HSA, you really want to evaluate what your health care expenses are. And if you spend more annually, then you’re going to receive in contributions or more than your annual deductible or coinsurance and co-payments.
This may not be a good plan for you since you have to pay the entire combined deductible before the plan starts to pay. You’ll be paying your savings account down every year in that scenario. And so, I think a wise decision would be to calculate how much you spend annually in your medical expenses. On average, if you are very healthy and you’re not concerned with spending a lot of money, this could be a good option for you because it will allow you to build your savings account since you don’t have a lot of money going out in expenses.
And I think the key difference too, between an HSA and an FSA is that the employer typically makes a contribution toward the HSA account. So, an employee wouldn’t necessarily have to make any contributions if they didn’t want to. Because if you are a state employee, the contribution amount varies from year to year and that is set aside in the open enrollment materials.
And the employer contribution varies depending on if you are a single person enrolling in an HSA or a family enrolling. And so, your employer will contribute a certain dollar amount each year into your Health Savings Account. So, you can just plan on that if you want to and not have to make additional contributions.
Jenny
Yeah, well I really love this idea of being able to roll over the funds. I have to say that personally, it’s something that I never really considered too much before of having a Health Savings Account. I personally, I consider myself a pretty healthy person. I only go into the doctor maybe once or twice a year for a checkup.
And so, I didn’t feel like putting money into account, taking that away from my paycheck. But like you said, if it’s something that my employer contributes to the account, that could be really helpful in the future.
Leanna
Yes, exactly. In your situation, the high deductible health plan is a great option for you because you don’t have a lot of medical expenses and your employer for a single employee, they contribute $700.08 per year. And for a family they contribute $1,400.04 for one or more people enrolled in the plan per year. And so, those contributions are going into a Health Savings Account.
And if you do happen to get sick, you will pay that entire doctor bill until you meet your deductible. So, the money that is contributed can be used to pay that doctor bill. But at the same time you have your preventive care services that are available to you paid upfront at 100% of the allowed amount before you have to meet your deductible.
So, if you go in for your routine exam every year, you know that that’s going to be covered and you don’t have to worry about those out-of-pocket expenses. So, it’s definitely a good option for someone like you who doesn’t maybe go to the doctor a whole lot, but you still want to go in for your routine exams and make sure that you’re healthy.
I want to be careful about I don’t want to discourage anybody from going to the doctor. It’s important to go to the doctor. And you may have a situation where you enroll in a high deductible plan with the Health Savings Account. And then we have these unfortunate folks who maybe get a diagnosis that will create a lot of office visits.
And in those circumstances, you just have to know that that’s one of the risks that you take by enrolling in this plan. And you do have an annual open enrollment every year and you can switch plans again, if that’s the case and you have ongoing treatment that’s needed.
Jenny
So, if I did get sort of a terminal illness, a terminal diagnosis or something that was more serious, that would cost me more medical bills, then I could go ahead and re-enroll in that fall time.
Leanna
Yes. During open enrollment and then switch to like a PPO type plan. With a lower deductible the following year. But in the meantime, you still do have those employer contributions and you still do have the maximum deductible before the plan starts to pay. And you also have an annual maximum amount that you pay every year. So once you reach that threshold, the plan starts to pay at 100%.
So, there are safeguards in this plan for that situation, but you will be paying more out of your pocket than anticipated if that happens after you enroll.
Jenny
Sure. So where would a person go to learn more about this?
Leanna
They can certainly go to the HCA website during open enrollment. We have dedicated pages for both PEBB and SEBB programs. They can also go to their payroll and benefits team through their employer. They may contact Health Equity directly.
I always encourage everybody to look at their CDHP certificate of coverage – that’s for PEBB. And for SEBB, it’s the High Deductible Plan certificate of coverage. That goes into a lot of detail about the plan and what they can and cannot do. It’s also at the front of the certificates of coverage has contact information not just for Health Equity but for the medical plan. And if they have any coverage with how the two work together, the dedicated customer service team can help them and answer their questions.
Jenny
Well, Leanna I really appreciate your insight today.
Leanna
Happy to be here. Thank you for inviting me.
Jenny
Yeah. Thank you so much.
[music outro]
Disclaimer
Thanks for listening. And now we’d love to hear from you. What topics would you like to hear about? What questions do you have for us? Send an email to drs.podcasts@drs.wa.gov that’s drs.podcasts@drs.wa.gov. The Department of Retirement Systems provides this podcast as a public service, but it’s neither a legal interpretation nor a statement of DRS policy.
References to any specific product or entity do not constitute an endorsement or recommendation. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by DRS employees are those of the employees and do not necessarily reflect the view of DRS or any of its officials.
