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Learn to get most from medical savings account

By Pamela Yip
Monday, April 9, 2012
 

As health care costs keep rising, more employers are offering health savings accounts to help their employees manage medical expenses.

If you manage an HSA correctly, it can help you build up savings that could be used to pay for health care when you're older.

Despite the increasing adoption of HSAs, many consumers are still confused by them.

Think of an HSA as a bank account with special advantages:

Contributions to an HSA are tax-deductible

You don't pay tax on money withdrawn as long as it's used for eligible medical expenses. If you take the money out for any other reason, the amount you withdraw will be subject to income tax and may be subject to an additional 20 percent tax.

Funds in the account not needed for near-term expenses may be invested in mutual funds so your money can grow. Investment earnings are tax-free.

Unused funds in the account roll over to the next year and belong to you. And if you change jobs, you take the HSA with you, so it's portable.

To contribute to an HSA, you must be enrolled in a qualified high-deductible health plan. The minimum deductible this year on an HSA-qualified plan is $1,200 for individuals and $2,400 for families.

Many consumers are confused about the differences between an HSA and a flexible spending account. The main difference is the flexible spending account's use-it-or-lose-it feature.

Any money set aside in a flex plan that you don't spend in that year will be forfeited. You don't lose any unspent money in an HSA.

So the FSA is a spending account, and the HSA is a savings account.

"Any fees (in an HSA) are yours," said Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute. "If you overdraw your account, there's a fee associated with that, so you need to pay careful attention to how you can use the account."

To get the biggest bang from an HSA, you need to manage your health care dollars efficiently.

"If you really want to maximize your tax savings and build up your HSA, then pay out of pocket for the smaller medical expenses (such as small co-pays) and leave the money in your HSA (for major health expenses)," said Carrie McLean, consumer expert at eHealthInsurance.com.

But if you do use your HSA to cover your costs now, "make sure your medical expenses are HSA-eligible," said Margaret Jarvis, spokeswoman for Blue Cross and Blue Shield of Texas. "HSA custodians and health plans offer a number of resources to help the account holder understand if an expense is considered a qualified medical expense."

Here are other ways to manage your health care spending and make the most of your HSA:

Contribute the max: Put as much in your HSA each year as you can to get the best tax savings. Contribution limits are set by the IRS and change each year because they're adjusted for inflation.

For 2012, individuals can contribute up to $3,100 and families up to $6,250. Those 55 and older can make an additional $1,000 in catch-up contributions.

Your employer may deposit money into your HSA to encourage you to spend health care dollars wisely. Contributions from both you and your employer count toward the annual contribution limits.

The timing of your contributions is critical because you can't use your HSA unless you actually have money in the account.

This is another difference between an HSA and a flexible spending account, where the total amount you've earmarked is available from the beginning of the year.

Stay in network: Use the doctors and medical facilities in your health plan's network because they offer discounted rates to the plan's customers.

That means you will often pay less out of pocket.

Still, you should shop around for health services. Even within your plan's health network, different doctors and medical facilities will charge you differently for various things. That's because the insurance company has negotiated different rates with different health care providers.

"Costs for scans such as MRIs or CT scans can vary up to $500, depending on where you get them," according to health insurer Cigna.

Go to the right place: When you need urgent care, you have choices. For less serious situations, you may not need to go to an emergency room. Urgent care centers or clinics can be a less-expensive option.

"Retail clinics based in department, drug or grocery stores can offer quick and affordable access to care for common medical conditions," Cigna said. "You may be able to contact your physician online for information or help with routine, nonemergency situations. Online 'visits' often cost much less than an office visit."

Ask your doctor ahead of time about your care options.

Manage medications: Know what your health plan covers and how much your drugs will cost you out of pocket. That way, you can talk with your doctor or pharmacist to find the least-expensive option.

"Doctors tend to prescribe what they've just most commonly done in the past and/or new things that their pharmacy representative has brought in," said Autumn Zank, Cigna HSA product manager. "The doctors in most cases aren't really aware of what that actually costs the consumer."

Ask your doctor about generics and consider mail-order drugs instead of buying your medications at a pharmacy.

Practice prevention: "Take advantage of your preventive services with no additional out-of-pocket expense," Jarvis said. "HSA-qualified, high-deductible health plans have historically promoted higher coverage levels of preventive screenings and exams than more traditional health plans."

Good habits

To manage your health savings account dollars efficiently:

• Use your health plan's network of doctors and medical facilities whenever possible.

• Determine how serious your health care need is. For less serious situations, you may not need to go to an emergency room.

• Ask your doctor to prescribe generic medications for you.

• Make sure you know what is considered a "qualified medical expense." Your health plan should explain which expenses qualify.

Source: Dallas Morning News research

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