To get the most bang for your buck while still allowing for individual autonomy, you might take a peak into the world of consumer-driven health accounts, or CDH accounts. These cost-controlling features have emerged as a game-changing component in healthcare, providing you with greater flexibility, choice, and responsibility in managing your healthcare costs. You might even get your employer involved, too.
There are three types of consumer-driven health accounts:
Health Savings Accounts (HSAs)
Health Savings Accounts are tax-advantaged accounts that allow you to set aside pre-tax dollars to cover qualified medical expenses. These accounts are typically paired with high-deductible health insurance plans, (as in $2,000 or more) and contributions made to HSAs are tax-deductible.
Although it isn’t in the name per se, the account is pretty flexible—anybody, including an employer, can put money into an HSA, so long as that person isn’t Medicare eligible. The money belongs to you and you only, so the employer won’t take it if you leave your job. And if you need individual coverage for now, but plan to take your employer’s plan in the future, that money can get packed in the moving van headed to your new office.
Funds don’t expire, funds can be invested, and funds aren’t taxed when put in or taken out.
Who might be interested in an HSA?
If you are tempted by a low premium plan and are willing to set some cash aside now and again into that HSA, it’s probably a solid option. That is, if you don’t need to spend that money towards your deductible. Once you have done that a few times, you’ll have some money on hand to pay for that hockey puck you took to the finger or a safety net when you have a high-cost prescription.
Flexible Spending Accounts (FSAs)
Flexible Spending Accounts are employer-sponsored accounts that allow you to contribute a portion of your pre-tax salary to cover eligible medical expenses. Employers can contribute as well, but the IRS sets a limit on how much they can contribute.
The word “flexible” is included in the name of this type of account because the rules regarding what this money can be spent on are a bit looser than HSAs. In general, all things that can be covered by an HSA can also be covered by an FSA, plus other items like orthodontics, sunscreen, allergy pills…think things you would generally find in a medicine cabinet.
The downside here is that the money doesn’t belong to you as the owner of the account: it belongs to the employer, and the money expires at the end of each plan year. Some might roll over, and some might have a grace period attached, but in general, if you don’t use it, you lose it.
Who might be interested in a FSA?
Well, whether you are interested or not, you might wind up with one, since there usually isn’t a limit to the types of plans that can have these accounts, unlike their HSA sibling. But this isn’t a bad thing at all! You now have an easy way to pay your copays, snag some stock for your first aid kit, and maybe even wipe out a dental bill. Just don’t forget to use it at the end of each plan year.
Health Reimbursement Arrangements (HRAs)
Then finally, we have health reimbursement arrangements, or HRAs. HRAs are employer-funded accounts that reimburse you for qualified medical expenses. Unlike FSAs, unused HRA funds can often be rolled over to subsequent years, but the money belongs at the end of the day to the employer, so that rollover goes back to them, not the employee.
These accounts are under the control of the employer since they are the only ones allowed to fund it. There is a maximum, but no minimum, and it can be filled at any time with unused funds churning back to the employer. Employers might, for example, plop the deductible into each employee’s account on the first of every plan year. It might be possible someone takes that puck to the hand on day one and uses the entire deductible. Or, it's possible they blocked the shot, never needed that money, and it all went back into the employer’s pocket.
Who would be interested in HRAs?
If you are an employee, you should be interested in these. There is no cost to you, and you get some of your health costs paid by your employer. On the flip side though, the money belongs to the employer, so don’t get comfy with that money if you plan to leave your company soon. Just like HSAs, HRAs are associated with lower premium, higher deductible plans, so these accounts can save money for both employer and employee alike when used with savvy. So really, your employer might be interested too if the juice is worth the squeeze with these accounts.
How else do these accounts benefit me?
Aside from all of them saving money all around, these can have some other sly benefits. With these accounts, consumers tend to be more aware of their healthcare expenses, so they are mindful of their healthcare spending, leading to reduced overall healthcare costs. And it's never too soon to reiterate the tax-free aspect of all three of these accounts.
Sign me up!
This is only scratching the surface of consumer-driven health accounts, but it's enough to get you started if you are in the market for a plan with this feature. If you are interested in using one of these accounts to pay for a medical procedure, make sure to check the details of your plan to ensure that it will be eligible. If you have an HSA and move plans, don’t leave that money on the table: make sure you know how to access it later or transfer it to your new HSA. And if you get an FSA, make sure to spend that money before it expires.