The ABCs Of Health Insurance: HDHP, HSA, And FSA

Dealing with health insurance can feel like you are eating alphabet soup: there are a ton of acronyms (HMO, PPO, etc.) so it can be difficult to find out what benefits your insurance company is offering and what you are required to pay.
With the Affordable Care Act, individuals and families will be required to pay taxes for not having employer- or government-provided insurance starting in 2014, so you can no longer afford to go without insurance. Luckily, there are some health insurance plans and savings accounts in place to help you save a little money.
High-Deductible Health Plan (HDHP)
This health insurance plan has lower premiums, or the monthly payments you make to keep your benefits in effect, and higher deductibles, or the amount of medical costs you have to pay before your insurance starts covering the rest of the costs. HDHPs are intended for individuals and families that do not have or plan to have many medical costs. This plan is also called “catastrophic coverage” because it is intended for serious illnesses, such as cancer, heart attacks, or strokes.
When considering this plan, keep in mind that the deductibles are expensive. For 2012, the minimum deductible for a HDHP is $1,200 for individual coverage and $2,400 for family coverage. The maximum out-of-pocket expenses are $6,050 (individual) or $12,100 (family). These limits do not apply if the doctor or service is outside of the insurance company’s network.
If you rarely have medical expenses, the small premiums can save you a lot of money.
Health Savings Account (HSA)
A health savings account is available to taxpayers in the United States who are enrolled in a high-deductible health plan. With an HSA, you add funds to an account that are used to pay for qualified medical expenses. These funds are not subject to federal income taxes.
There are certain limits to how much money you can add to the account and how you can use the funds. For 2012, the limits are $3,100 for individuals and $6,450 for families. HSA funds no longer cover over-the-counter medications without a doctor’s prescription, but they can cover medical devices, such as crutches, orthopedic shoes, and eyeglasses. If you do not use all of the money in your account during the year, it rolls over into the next year.
Many people appreciate that an HSA helps individuals and families save for health care and opens up the possibilities for coverage instead of limiting people to specific services.
Flexible Spending Account (FSA)
Although you still need a health insurance plan, a flexible spending account can help cut medical costs. An FSA is a benefit that employers can offer to their employees. This account allows you to set aside a portion of your earnings to pay for qualified expenses. For a medical expense FSA, this means using the money on expenses that are not covered by insurance, such as deductibles and copayments.
The money in this account is not subject to federal taxes. Some companies provide a debit card, known as a Flexcard, to access the funds on your account. Again, you cannot use your funds on over-the-counter medication without a doctor’s prescription, but you can put the money toward certain medical devices.
Unlike the health savings account, if you do not spend your funds within the year, you will lose them. Families should approximate the amount they will spend in a year and perhaps put a little less into their accounts.
The benefit of this account is that you can keep whatever health insurance plan you have and put some tax-exempt earnings away for health care.
You can find all of these options through several health insurance companies. Do the math and find out what programs would be the most beneficial for you and your family while still saving money.
Jake Magleby graduated from NYU with a degree in Business Management, and now he helps small business owners increase their revenue and online traffic. Jake enjoys writing about finance, sales, and marketing. You can find more of his work at his blog, Franchise a Business.