Tak­ing con­trol of health care expens­es is on the top of most peo­ple’s to-do list for 2018.  The aver­age pre­mi­um increase for 2018 is 18% for Afford­able Care Act (ACA) plans.  So, how do you save mon­ey on health care when the costs seems to keep increas­ing faster than wage increas­es?  One way is through health sav­ings accounts.

Health sav­ings accounts are used in con­junc­tion with High Deductible Health Plans (HDHP) and allow savers to use their pre-tax dol­lars to pay for qual­i­fied health care expens­es.  There are three major types of med­ical sav­ings accounts as defined by the IRS.  The Health Sav­ings Account (HSA) is fund­ed through an employ­er and is usu­al­ly part of a salary reduc­tion agree­ment.  The employ­er estab­lish­es this account and con­tributes toward it through pay­roll deduc­tions.  The employ­ee uses the bal­ance to pay for qual­i­fied health care costs.  Mon­ey in HSA is not for­feit­ed at the end of the year if the employ­ee does not use it. The Health Flex­i­ble Sav­ings Account (FSA) can be fund­ed by the employ­er, employ­ee, or any oth­er con­trib­u­tor.  These pre-tax dol­lars are not part of a salary reduc­tion plan and can be used for approved health care expens­es.  Mon­ey in this account can be rolled over by one of two ways: 1) bal­ance used in first 2.5 months of new year or 2) up to $500 rolled over to new year.  The third type of sav­ings account is the Health Reim­burse­ment Arrange­ment (HRA).  This account may only be con­tributed to by the employ­er and is not includ­ed in the employ­ee’s income.  The employ­ee then uses these con­tri­bu­tions to pay for qual­i­fied med­ical expens­es and the unused funds can be rolled over year to year.

There are many ben­e­fits to par­tic­i­pat­ing in a med­ical sav­ings account.  One major ben­e­fit is the con­trol it gives to employ­ee when pay­ing for health care.  As we move to a more con­sumer dri­ven health plan arrange­ment, the indi­vid­ual can make informed choic­es on their med­ical expens­es.  They can “shop around” to get bet­ter pric­ing on every­thing from MRIs to pre­scrip­tion drugs.  By plac­ing the con­trol of the funds back in the employ­ee’s hands, the employ­er also sees a cost sav­ings.  Reduc­tion in pre­mi­ums as well as admin­is­tra­tive costs are attrac­tive to employ­ers as they look to set up these accounts for their work­force.  The abil­i­ty to set aside funds pre-tax is advan­ta­geous to the sav­ings savvy indi­vid­ual.  The inter­est earned on these accounts is also tax-free.

The fed­er­al gov­ern­ment made adjust­ments to con­tri­bu­tion lim­its for health sav­ings accounts for 2018.  For an indi­vid­ual pur­chas­ing sin­gle med­ical cov­er­age, the year­ly lim­it increased $50 from 2017 to a new total $3450.  Fam­i­ly con­tri­bu­tion lim­its also increased to $6850 for this year.  Those over the age of 55 with sin­gle med­ical plans are now allowed to con­tribute $4450 and for fam­i­lies with the insur­ance provider over 55 the new lim­it is $7900.

Health care con­sumers can find ways to save mon­ey even as the cost of med­ical care increas­es.  Con­tribut­ing to health sav­ings accounts ben­e­fits both the employ­ee as well as the employ­er with cost sav­ings on pre­mi­ums and bet­ter informed choic­es on where to spend those med­ical dol­lars.  The sav­ings gained on these accounts even end up reward­ing the con­sumer for mak­ing health­i­er lifestyle choic­es with low­er out-of-pock­et expens­es for med­ical care.  That’s a win-win for the healthy consumer!