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You have an HDHP. Now what?

Jan 29, 2020 8:00:00 AM

It’s 2020. And you have a high-deductible health plan (HDHP). Perhaps you started a new job where the health insurance option is an HDHP. Perhaps you made the switch from traditional health insurance coverage at your existing job this past open enrollment season. Perhaps you’re self-employed and have set yourself up with the substantial premium savings an HDHP offers. Or perhaps you find yourself with an HDHP for another reason.

Regardless of the why, you have an HDHP. So, now what? What should you do next? How do you make the most out of having HDHP health insurance coverage?

Start at the Beginning – Understanding an HDHP

The first step to “what’s next” is thoroughly understanding what an HDHP is, how it works and what it offers you as a healthcare consumer.

As its full name implies, a high-deductible health plan is simply that—a health insurance plan designed with a higher deductible than other traditional health insurance plans. Because of the higher deductibles, HDHPs offer significantly lower premiums than traditional health plans. And along with lower premiums, HSA-eligible HDHPs allow the option to utilize a health savings account (HSA)—which can provide you with numerous tax and other advantages. More on that soon.

From a numbers perspective, HSA-eligible HDHPs have specific amounts set by the IRS for both annual deductibles and annual out-of-pocket expenses in order to qualify to open a health savings account. For 2020, an HSA-eligible HDHP has a minimum annual deductible of $1,400 for individuals, and $2,800 for those with family coverage. Total annual out-of-pocket expenses can’t be more than $6,900 for individuals, and $13,800 for families.

The rise of HDHPs in the American healthcare system—specifically HDHPs paired with HSAs—falls in line with the modern trend toward more consumer-driven healthcare, where you can take a more active role in your healthcare and directly help control your healthcare costs. Being proactively engaged with an HDHP and an HSA can help you make smarter decisions when it comes to your healthcare—everything from the types of office visits you choose, to the prescription drugs you purchase.

But in order to do that, you need to know your HDHP and how your plan works—what’s covered when and how. You need to understand your deductible. Your out-of-pocket maximum. What falls under “preventive care” (which means it’s covered 100% without being applied to your deductible). And all the other ins and outs of your HDHP.

If you have general questions on your HDHP, you’ll likely find answers by visiting Bend’s helpful HSA Basics resource, which covers just about everything you need to know regarding HSAs and HDHPs in easy-to-read segments, question by question. For questions regarding your specific HDHP, be sure to consult your plan documents.

HDHP Mission Critical – Open an HSA

Now that we’ve covered the basics of what an HDHP is, let’s look at how an HDHP works with a health savings account (HSA). Because leveraging an HSA is the smartest and most important thing you can do to make the most of your HDHP.

A quick reminder—not all HDHPs are HSA-eligible—they must meet the specific IRS amounts for annual deductible and out-of-pocket maximum we covered above. So be sure to double-check your plan’s details carefully before opening an HSA.

Health savings accounts are a game-changer when it comes to maximizing the benefits of your HDHP. HSAs are convenient, tax-advantaged and offer many other upsides. If your employer offers an HSA program, they may make contributions directly to your HSA, speeding your HSA growth. Even if your employer doesn’t contribute, or if you’re self-employed or in a different circumstance, opening and contributing to an HSA is still a smart and savvy move. Anyone who has an HSA-eligible HDHP can benefit greatly from an HSA.

How an HSA Works with an HDHP

The main purpose of an HSA is to serve as a tax-advantaged account for saving funds to pay for qualified medical expenses until you reach your HDHP’s deductible. An HSA functions as a bridge between the higher deductible and the point at which your HDHP begins paying for covered expenses. HSAs can be funded by a number of sources—you, your employer or even a family member or friend. The idea is to contribute enough money into your HSA to be able to cover any medical expenses you have up to your annual deductible. Oftentimes, the premium savings you benefit from alone can be your contribution.

Once you’ve met your annual deductible, your HDHP begins performing like traditional insurance. For example, after your deductible is met, you may receive 80% coverage on medical costs until you meet your annual out-of-pocket maximum. Many HDHPs offer 100% coverage after you meet your deductible. When you’re covered at 100%, you don’t need to use your HSA—but it’s still critical to contribute to ensure that your HSA is adequately funded for the next time you need it. And don’t forget—there’s a growing list of medical services, products and prescriptions that fall under preventive care, where coverage is provided immediately without the need to meet your deductible.

Bottom line—pairing an HDHP with an HSA is an extremely powerful combination that provides you with greater flexibility and control over your healthcare spending.

HDHP + HSA = Tax Savings and Much More

It’s a simple equation. Using an HSA with an HDHP allows you to take full advantage of three types of tax savings, while also having a dedicated savings account to use for present and future medical expenses. Even better, health savings accounts like Bend HSA allow for account growth through interest and investment opportunities.

Let’s take a moment to quickly break down HSA tax advantages.

You may have heard the most lucrative HSA advantage is its “triple tax savings.” What that means is that you save on taxes in three ways:

  1. Your HSA contributions are 100% tax deductible, up to the annual legal limit (much like an IRA)
    1. If you contribute pretax, your contributions aren’t included in your gross income and aren’t subject to income taxes
    2. If you contribute after tax, you can still deduct your contributions on your tax return and lower your overall tax liability
  2. Your HSA funds can be used tax-free for any qualified medical expenses
  3. Any interest or other HSA growth is tax deferred

HDHPs with HSAs Offer More than Just Tax Advantages

Along with important tax advantages, there are many other HSA benefits to keep in mind. Using an HSA with your HDHP offers flexibility and convenience in a number of ways:

  • HSAs are portable – Your HSA remains with you no matter what, regardless of job changes, health insurance plan changes or even retirement. The contributions in your HSA will always remain available to use for qualified medical expenses in the same tax-advantaged way as the day you set your HSA up.
  • HSAs allow for rollovers – You won’t be faced with a “use it or lose it” scenario when it comes to your HSA contributions like you do with many other tax-advantaged accounts like FSAs. Any funds left in your HSA at the end of the year roll over indefinitely with no penalties or charges.
  • HSAs can be used for a variety of healthcare costs – You might be surprised when you see all the “qualified medical expenses” you can pay for using your HSA funds. Everything from ER visits and surgical costs, to dental expenses, mental health services, vision care and prescription drugs, can all be paid for using your HSA.
  • HSAs allow for multiple contributors – HSA contributions don’t just have to come from you. Your employer can also contribute to your HSA, as well as a family member, or really just about anyone else. Keep in mind, there are IRS limits in place for the total amount of HSA contributions combined based on account type (and your age), but it’s still a great advantage to be able to fund contributions from multiple sources.
  • HSAs provide you with an additional investment vehicle – An industry-leading HSA account like Bend HSA provides the ability to invest your contributions similar to a 401(k), helping you save more for retirement. And in fact, should you decide to use your HSA contributions for other purposes after retirement, only income tax at your current rate will be due.

Don’t Wait Another Day – Open Your Bend HSA

So, you have an HDHP. And now you know the “now what.” It’s critical to open an HSA to unlock the full potential of your HDHP health insurance coverage.

And while gaining an understanding of HDHPs and HSAs while getting control over your healthcare costs can feel overwhelming, it doesn’t have to be. Bend makes it easy so you can spend more time living and less time worrying. Bend provides you with the smartest, most advanced HSA on the market, loaded with innovative, user-friendly capabilities that work for you. Best of all, a Bend HSA has no monthly fees for individuals and families. No gimmicks. No surprises. No hidden fees.

With a Bend HSA, you don’t have to be an insurance or financial expert to get started on your path to better financial health. So, don’t delay. Get your 2020 off to a strong and smart start. Open your Bend HSA today.

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