Yahoo Finance 10 Ways to Maximize Your HSA in 2016
With open enrollment officially closed for the federal health insurance marketplace and most employers, plenty of Americans are getting acquainted with a new health insurance plan for 2016.
If you now have a high-deductible plan and a health savings account, here are 10 ways to make the most of your money this year.
1. Open and fund your HSA right now, even if you can't deposit a lot.
High-deductible health plans can require policyholders to pay thousands out of pocket before insurance coverage kicks in. To soften the blow, the federal government allows those with qualified plans to open HSAs and pay their out-of-pocket expenses with tax-free money.
However, the tax savings only applies to expenses paid after the HSA was opened. Steve Neeleman, founder and vice chairman of HSA provider HealthEquity, says the law can be interpreted to say an HSA is not deemed open until it has money in it.
"Let's say you didn't fund your HSA and then break your leg," Neeleman says. At that point, it's too late to put money in and get a tax break on the bill. To avoid this scenario, Neeleman says it's important to not only open an HSA but also deposit a few dollars. Then, after you receive a big bill, you'll be able to add more money and use that to pay for your medical costs with tax-exempt dollars.
2. Name a beneficiary in case the unthinkable happens.
After you've opened your account and funded it, the next step is to ensure you have a beneficiary named.
"It's unfortunate, but we do have people who pass away every year and don't have a beneficiary," Neeleman says. When that happens, cash from the account may get tied up until probate court settles the estate.
3. Feel free to move your HSA money elsewhere.
Workers may find their employers automatically create an HSA for them to go along with their high-deductible health insurance plan. However, don't assume you have to keep your money there, says Ryan Tiernan, senior HSA consultant with Access Point HSA, a health savings account administrator.
"An employer can set up a HSA for me, but the assets in that plan belong to me," Tiernan says. That means an employer could make a deposit one day, and you could conceivably transfer it to a different HSA the next day.
The process typically involves filling out some paperwork and keeping documentation for your taxes. Tiernan says there is no limit on trustee-to-trustee transfers -- that is, transfers in which one HSA provider directly sends the money to another HSA provider. While money can be withdrawn and then deposited into a non-HSA account, it will then be subject to income tax plus a 20 percent penalty.
4. Remember your HSA can be an investment tool.
Not all HSAs are created equal. Some work as simple savings accounts and offer a minimal interest. Others let you invest money in mutual funds, just as you would in a 401(k) or IRA.
To invest your HSA money, you may need to have a certain amount available to deposit, called an investment threshold. That threshold may be difficult to meet if you need ongoing medical care, but for those who can put money into an HSA and leave it there, investing can be a good way to build savings.
"If you're a younger employee and you have lower health care costs, it's easy to build a balance [to invest]," Tiernan says. High-earning workers may also find it makes sense to pay for medical expenses with non-HSA money, so the dollars in an HSA investment account can grow. In 2016, those with individual high-deductible plans can deposit $3,350 into an HSA, while those with a family plan can contribute a maximum of $6,750. In either case, an extra $1,000 catch-up contribution is allowed for those age 55 or older.
5. Ask whether your employer has wellness programs tied to HSAs.
Some employers may automatically deposit a certain amount into worker HSAs, but Neeleman says workplace wellness programs can further sweeten the pot.
He advises people to check whether their company has a wellness program that will put money into their HSA in exchange for signing up for a healthy living initiative, getting a physical or something similar.
6. Don't burn through your money to reach your deductible.
It can be tempting to rush through spending your HSA money in order to meet your deductible, but experts say that's a mistake.
"Personally, I want to go through my deductible as slowly as possible," says Paul Thomas, CEO of prescription drug savings provider Luscinia Health. "My goal is to spend as little out-of-pocket as possible."
It may seem as though you're wasting money on premiums if you never meet your deductible, but those payments serve as insurance against catastrophic events such as a serious accident or cancer diagnosis. Instead of trying to meet your deductible as quickly as possible, look for ways to minimize your out-of-pocket costs, such as visiting urgent care rather than the more costly emergency room, when possible.
7. Shop around and look for discount programs to stretch dollars.
One of the best ways to maximize HSA money is to make sure you're getting the best price for the services you need.
"There is such price variance in medical costs," Thomas says. "Five or 10 minutes of Google research can save you hundreds of dollars."
Health insurance companies often have tools on their websites to help policyholders search for the most cost-effective care in their area. Meanwhile, third party websites like GoodRx may make it easy to find the best price for prescription drugs, although Thomas cautions these sites may not always be accurate.
Another option to save on prescription drugs is to look for coupons online or sign up for a discount card. Some discount cards have a membership fee, but others are free. For example, Luscinia Health's RefillWise website offers a free discount card that provides perks such as a rewards program and refill reminders in addition to reduced-cost prescriptions.
8. Use your plan's free preventive care, but beware of service creep.
Even high-deductible plans are required to provide certain preventive services free of charge, thanks to the Affordable Care Act. These services include immunizations, well-child checks and specific cancer screenings, among other things.
"The crime is when people go for the cheapest plan and then don't do the HSA or go for the free preventive care," Neeleman says.
Getting this care can keep you healthy and may identify small issues that can be addressed inexpensively before they balloon into expensive conditions. However, be cautious about bringing up other health issues while receiving preventive care. Addressing other concerns could result in the visit being billed as something other than preventive care.
9. Make sure your doctor is still billing your insurance.
You may be paying out of pocket, but your doctor should still bill your insurance company. Otherwise, the money you're spending won't be credited toward your deductible.
In addition, make sure you are billed your insurer's negotiated rate rather than the potentially higher rate charged to customers who are without insurance and paying cash.
10. Pay with non-HSA money, but keep receipts for future reimbursements.
"Unfortunately, when a lot of people get handed a HSA, it doesn't come along with training," Tiernan says.
As a result, some people may mistakenly believe an HSA works like a flexible spending account, in which funds must be spent each year or they disappear. However, an HSA is not a "use it or lose it" account, and money can be left in it indefinitely, even if you later switch from a high-deductible plan.
Given this fact and the investment potential of an HSA, both Tiernan and Neeleman say those who can afford to do so should pay for their medical expenses with non-HSA money so their account can grow tax-free. If the money isn't used by age 65, it can be withdrawn for any reason with no penalty, although regular income taxes will apply. (If it's withdrawn earlier for unqualified medical expenses, the amount is subject to income tax and a 20 percent penalty.)
If you pay with non-HSA money but later change your mind, you can reimburse yourself from the HSA at any time. You need to be able to provide your receipts to prove the requested money is for a qualified medical expense. Some providers, like HealthEquity, offer apps that make it easy to upload and store documentation.
HSAs have "remarkable tax benefits," as Neeleman puts it. By using these 10 tips, you can maximize those while minimizing your out-of-pocket costs.
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