It's Open Season! - How to Pay Less for Medical Expenses You Need

Still hunting wabbits . . .

Open season is still on the horizon, so I thought I’d offer another couple of health plan components that you may be able to choose from, the Flexible Spending Account (FSA) and Health Savings Account (HSA). Pretty straightforward, I thought, until my dad (the retired healthcare exec) laughed at me. Maybe not. There are several subtle and not so subtle differences between the two options, but they are still easier to understand than most health insurance policies.

In a nutshell, FSAs and HSAs help you budget for your medical expenses with money that isn’t subject to income or payroll taxes. You usually can’t get both unless you are eligible for a dependent FSA (not discussed here). But if offered, you should take one or the other because, as Dad always pointed out, if you don’t take advantage, it’s like paying 133% when you don’t have to.

The one thing that may limit you on this is monthly overall expenses since once you make your contributions, withdrawals for non-medical purposes come with a penalty. I would love to be able to max out my contribution (I’ve had each before), but often I need cash on hand to pay for other non-medical expenses. So, I try to get as close as I can to the total out of pocket maximum for my plan that year, as much as I can without limiting the ability to pay other expenses. I am also lucky that, if I do an annual wellness check, my employer will contribute a few hundred dollars (that doesn’t count against the maximum contribution limit). I get into what this means below.

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Often, you have an idea of what your annual medical expenses will be based on the previous year: regular medications, number of doctor visits, medical device supplies, whether you are going to need planned surgery like for cataracts, or dental work. Use these estimates to come to an annual total and divide by the number of paychecks you receive per year for the amount of your contribution per paycheck, and see if you can afford to lose that much at a time. If not, start subtracting until you reach a contribution you can afford.

Then, if you have a choice, use our list to decide which option is the best fit for you. I will highlight the biggest differences between the two.

Flexible Spending Account

  • The basics: Account is set up and owned by employer, there are no eligibility requirements, and no fees.
  • Plan availability: Account is offered with both traditional health insurance plans (Health Maintenance Organization (HMOs), Point of Service (POSs), Exclusive Provider Organization (EPOs) plans) and high-deductible health insurance plans (Preferred Provider Organization plans (PPOs)).
  • How it’s funded: Contributions are always deducted pre-tax from your paycheck. Distributions (when you pay for stuff) are tax free.
  • What’s covered: Can be used to pay for health insurance expenses such as co-pays, deductible, coinsurance, and prescription drugs, as well as over-the-counter (OTC) medical necessities such as Band-Aids and medication (with a prescription – yes, your doctor should write you a prescription for OTC medication if you ask – does not include Band-Aids). You should check your plan, but most of them cover the things the IRS considers tax deductible
  • Funds availability: The entire annual amount is available on day one, but your employer may impose a penalty if you use funds for non-medical items.
  • Rollover: Before the Affordable Care Act (ACA or Obamacare), the employee had to use the whole amount every year. If you didn’t, the remainder went to your employer. Now the employee can roll over up to $500 if the insurance plan permits it, and any funds rolled over are added to the next year’s maximum.
  • Contribution: The IRS has not set the FSA maximum for 2018, but projections are that it will remain the same as 2017, $2600. Employers can contribute amounts that push the total past the maximum, and you can only change contribution amounts during open season or upon marital status change.
  • Portability: An FSA will disappear with a job change unless you are eligible through COBRA (a limited and expensive continuation of a previous employer’s health plan).

Health Savings Account

  • The basics: Account is offered by the insurance provider and owned by the employee. Some may have a small fee, which an employer usually pays, but you should read the fine print to be sure.
  • Plan Availability: Only offered with high deductible health plans. To qualify for an HAS in 2018, that means a deductible minimum of $1350 for a single person/$2700 for a family and a maximum out of pocket cost of $6,650 for a single person/$13,300 for a family. Additionally, to qualify for an HAS, a health insurance plan must not offer any coverage beyond preventive care before the person/family meets the deductible.
  • How it’s funded: Contributions are tax deductible or can be deducted before payroll taxes are applied to your paycheck. Any growth or withdrawal is tax free. Some people look to these accounts as a good investment. I invariably go through them in a matter of a few months thanks to consumable medical supplies and expensive medications.
  • Funds availability: You can only use funds that have accumulated by the time of need, and if you use the funds for non-medical items, those funds will be subject to previously waived taxes, as well as a 20% penalty.
  • Rollover: Whatever is left at the end of the calendar year rolls over and accumulates.
  • What’s Covered: Can be used to pay for health insurance expenses such as co-pays, deductible, coinsurance, and prescription drugs, as well as over-the-counter (OTC) medical necessities such as Band-Aids and medication (without a prescription). You should check your plan, but most of them cover the things the IRS considers tax deductible
  • Contribution: The maximum contribution is $3450 for an individual/$6900 for a family. Individuals 55 and over can increase those amounts by $1000 (same for families), and you can adjust the amount of the contribution during the year.
  • Portability: You are allowed to keep using HSA funds even after you are no longer eligible to contribute (if you switch to a plan that does not qualify as a high-deductible plan), and it can follow you from job to job.

For more information on these types of plans, see IRS Publication 969. And if you have more questions about insurance before or during open season, please contact me.

Insurance 101

So, insurance. What to say about insurance? Can’t live with it, can’t toss it out a window and see it shatter into a thousand pieces on the sidewalk below? At least the (figurative) sound would be satisfying.

Diabetes is one of the most enduringly expensive conditions on the planet. The insulin pump I wear costs more than twice the average price for an engagement ring, and test strips can cost more than $1.50 each. I use between 6 and 10 per day. I’m sure your condition isn’t far behind. The bottom line is, unless independently wealthy, chronic patients can’t live a healthy life without insurance.

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According to the Kaiser Family Foundation (KFF), the nearly half of the population depends on employer-provided insurance. Most of us are familiar with that narrow timeframe known as “open season” during which you are supposed to examine all of the options and make the best choice for your family and your budget. Missing the deadline can mean a loss of coverage. It’s certainly apt that the term is also used by hunters in this country. I always feel like I am under pressure and if I can just make it through the two weeks with the right decision in hand, I will be ok. At least for the next calendar year.

But first we’ve got to get there. How does health insurance even work, and how do they come up with all these different plans? What is the difference between a Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO)? Which is right for me? Do I need separate Vision and Dental coverage? Should I use an HSA or FSA? What is different in the Formulary this year? Why is drug coverage through a separate company? What qualifies as In-network vs. Out-of Network? How likely am I to hit my out-of-pocket maximum and what counts toward it? Is there a different out-of-pocket maximum for out of network coverage?

Those are just some of the questions you face every year. They are a headache for seasoned veterans, nearly impossible to decipher for newbies. Hopefully, as I am able to do research and post more often, I will be able to help you demystify and provide answers to your questions.