Out-of-pocket costs — expenses for medical care that aren’t paid by insurance — can add up quickly, especially when the unexpected occurs, such as surgery or emergency room visits.
A recent study by Bankrate found that nearly a quarter of Americans have no emergency savings at all, meaning even one significant unexpected medical expense could cause severe financial hardship.
So, what are some ways — other than a traditional savings account — to maximize your health insurance benefits and better prepare for the unknown? Depending on your employer and health insurance plan, you may have access to a special savings account designed just for this purpose.
Health Savings Account
A Health Savings Account (HSA) is a bank account that allows you to save and pay for healthcare expenses tax-free.
Like a traditional savings account, your balance grows as you contribute funds. Funds can be deducted from your pre-tax pay on a recurring basis, and you can make additional one-time contributions. In some cases, your employer may also contribute funds to this account.
You can contribute up to $4,400 for self-only coverage and $8,750 for family coverage. If you are older than 55 you can contribute an additional $1,000 as a catch-up contribution.
HSAs are paired with high-deductible health plans, and unspent funds roll over year to year. This type of account can also follow you to other jobs and health insurance coverage.
Flexible Spending Account
A Flexible Spending Account (FSA) is set up through your employer with tax-free dollars. The full annual balance you select is made available immediately. You don’t have to wait to let the balance grow. Then, to fund or repay this full amount, scheduled installments are deducted from your pay throughout the year. Your employer can also add money to this account.
Funds may be used to cover dental and vision expenses, over-the-counter medications, and other health-related expenses – even childcare.
An FSA does not need to be paired with a health plan. Typically, you lose any FSA money you don’t spend by the end of the year.
Health Reimbursement Arrangement
A Health Reimbursement Arrangement (HRA) is unique because only your employer can contribute funds – you cannot. If this option is available, it can be another method for covering medical expenses and prescriptions.
Because an HRA account is owned and funded by your employer, it does not go with you if you change plans or jobs.
Taking charge of your health
At every stage in life, health insurance provides the foundation to take control of your life, build healthy habits, and protect yourself from the unknown. Arkansas Blue Cross is here to help with comprehensive resources and customized support to assist in kickstarting your healthcare. Get the InsideTrack on the health basics of your health benefits.