How to save money on healthcare today
Published on September 21st, 2020
Healthcare is a universally shared experience that is deeply personal to us all. The dichotomies that exist stir up emotions that range from anger and defiance to hope and possibility. In the U.S., perhaps now more than ever due to the ongoing COVID-19 pandemic, the state of healthcare – and more specifically, how to afford it – consumes our thoughts. In fact, according to a recent Pew poll, 68% of Americans say healthcare is “very important” to their vote in the upcoming 2020 presidential election.
The range of opinions and emotions that the healthcare experience invokes was evident in the comments following a Reuters LiveCast about the benefits of health savings accounts (HSAs). The segment drew both praise and criticism on Twitter, with many comments directed toward failings of the broader U.S. healthcare system.
As the debate over the future of healthcare in America continues, no matter which side of the political aisle you fall on, the reality of healthcare today remains the same: Costs continue to rise, and consumers are increasingly responsible for understanding their options and paying for their care. Now is the time to take control, to the best of your ability given your unique circumstances, of how you pay and save for healthcare. For those receiving health insurance through an employer, here are a few ways you can get the most value for your healthcare dollar.
You do not want to find yourself on the hook for a high deductible without a tax-free way to pay for it.
If your employer offers a high-deductible health plan (HDHP), make sure it is HSA-eligible – and don’t forget to open and contribute to your account.
Healthcare consumers who elect a qualified HDHP, also known as an HSA-qualified or low-premium plan, pay for healthcare expenses at the negotiated rate up to a certain limit (the deductible), after which insurance pays a percentage or all of your future covered medical expenses. If you elect an HDHP, it’s crucial to open the HSA. With an HSA, you contribute money tax-free to use for qualified medical expenses. In other words, the tax-free money in your HSA can go toward the deductible in your HDHP.
Most employers who offer an HDHP also offer an HSA. If your employer doesn’t offer an HSA, you may still be eligible to open one independently, so make sure that the HDHP your employer offers is HSA-eligible before you elect it. You do not want to find yourself on the hook for a high deductible without a tax-free way to pay for it. Stay away from these plans; they are what give HSA-qualified or low-premium plans a bad name, and can lead to higher out-of-pocket costs for healthcare consumers.
If your employer offers to contribute to an HSA on your behalf, that is FREE money, so give it serious consideration.
Employers can choose to contribute to an employee’s HSA. These pre-tax contributions are immediately available for you to save, invest or spend on qualified medical expenses. Employers can make contributions annually, monthly or quarterly, or they can use a matching strategy like a 401(k). The contributions become your money to keep forever, even if you change employers.
Employer contributions typically increase employee enrollment and engagement with their tax-advantaged savings vehicles, too. In fact, a recent survey found that employees contribute an average of $2,132 to an HSA when the employer contributes, and just $1,651 when it does not. Employer contributions give healthcare consumers the head start they need to meet their deductible and build up their healthcare savings for future expenses.
Contribute to your HSA, even if it’s a small amount.
In an ideal world, healthcare consumers would have plenty of money to contribute to their HSA in order to pay for qualified medical expenses pre-tax, save money for future medical care, and invest to increase savings. Of course, ideal isn’t always reality. Many people can’t afford to engage in that way with their HSA, so the next-best move is to contribute the dollar amount you think you’re likely to spend on out-of-pocket healthcare costs in the coming year, at least up to your plan’s deductible. That way, you can reach your deductible with tax-free dollars and, therefore, spend less money (30% less on average) than you would were it to come straight from your bank account.
Another tip for paying for healthcare costs and increasing savings: Contribute to your HSA the amount that would have gone toward your monthly premium in a traditional health plan. For example, if the monthly premium for your employer’s traditional health plan is $400 and the premium for the HSA-eligible health plan is $200, take the difference ($200) and put it into your HSA. Worst case, you’ll be prepared to spend that money on medical expenses that arise. If you don’t use it all that month, however, you can slowly build up a nest egg for future unforeseen costs or for investment.
Remember, like a 401(k), you will never lose money you contribute to an HSA. It rolls over year after year. So, the more you’re able to contribute, the better.
If you’re able to invest, do so.
When the 401(k) first came into existence, people didn’t rush to open one. But over time, the benefits became well-known. The HSA is following a similar journey – becoming less of a “nice-to-have” and more of a “need-to-have” as a savings and investment vehicle.
If financial circumstances allow, healthcare consumers can benefit from investing their HSA dollars for growth in mutual funds, just like a 401(k). The average couple can expect to need $250k-$300k to cover healthcare expenses in retirement. Investing your HSA dollars can help grow funds to reach that amount. Think about what you may need in cash for upcoming medical expenses, then invest the rest. The minimum amount you need in your HSA to open an investment account is typically $1,000, and you can easily and quickly move money between the HSA investment and cash account at any time.
Ask questions and stay active in the management of your HSA and other health benefits.
In an uncertain healthcare environment, healthcare consumers must ask questions and engage with the benefits process. Many people shy away from this because of the personal nature of healthcare and because they don’t want to be the one person who doesn’t understand. But the reality is only 12% of American adults are “healthcare-literate,” according to a study from the National Center for Education Statistics. This means you’re a part of the majority who has questions about how to choose the right plan or how to set up an HSA. The good news? There are people who can guide you. HR professionals can answer your questions or bring in outside resources for confidential conversations. These conversations can save you significant money, so don’t be afraid to raise your hand and ask.
About the author
Brian Colburn is the Senior Vice President of Corporate Development & Strategy at Alegeus. Brian brings extensive experience that includes large-scale strategic initiatives, such as the joint purchasing venture between CVS Health and Cardinal Health, and nearly seven years at Bain & Company in the Healthcare and Results Delivery practice.
Brian executes the Alegeus growth strategy and leads the company to deliver better solutions, market disruption, and winning outcomes for clients with his focus on driving strategy and innovation, corporate development, mergers and acquisitions, product management and operations, and the end-to-end stakeholder experience.