The following post is by MPFJ staff writer Travis, who blogs at Enemy of Debt where he candidly shares his family’s financial struggles, failures and successes. As a father and husband, he provides a unique perspective on balancing debt, finances, and family.
Last year I made a major change regarding my health insurance, switching from a low deductible preferred provider organization (PPO), to a high deductible PPO with a health savings account (HSA) It wasn’t what I originally intended to do when I began investigating my health insurance options for 2015, but after hours of research I made the decision believing it would not only be the best choice for my family for the following year, but for long into the future.
Flexible Savings Account (FSA) vs. Health Savings Account (HSA)
I originally intended to keep the high deductible PPO that I’d had for over a decade. My intent was also to add a flexible savings account (FSA) which have the following characteristics:
- Funds are contributed pre-tax from my paycheck
- Funds are front loaded meaning if I indicate I will contribute $200 a month, the full year’s contribution of $2400 is available on January 1st.
- Funds must be used by the end of the year, or the funds are lost
- Low deductible medical coverage
- Great medical coverage including preventative and general office visits
- High monthly premiums
This option was attractive to use because our daughter needs braces, and the FSA would allow us to have our full year’s FSA contributions available at the beginning of the year. We could move forward with the braces on January 1st should we wish to do so.
I was ready to pull the trigger, then I started reading about the high deductible PPO with an HSA also offered by my employer which has the following features:
- Funds are contributed pre-tax from my paycheck
- $500 of automatic employer contributions
- $1100 of additional healthy living incentives offered in the form of additional employer contributions
- Funds can be rolled over from year to year, and invested for growth
- High deductible
- Only preventative care is covered until deductible is met
- Low monthly premium
The HSA option appeared to fit our family’s needs perfectly. Doing the math, I found the premium for the high deductible PPO plus a $250 monthly contribution to my HSA would result in an almost identical monthly payment as my health insurance premiums in 2014. The difference is that the $250 a month contribution, or $3000 for the year, would go into an account that I could use for medical expenses. Add to that the $1600 of total potential contribution from my employer, and my family would have $4600 available to pay for medical expenses.
My medical records show that the billed amounts (prior to insurance payouts) of our medical expenses for the past two years barely added up to $1000 per year. This clearly indicated that the high deductible PPO with an HSA was the right choice for our family.
Was an HSA the Right Choice?
As we approach the end of summer, how has my decision worked out for us? Here’s a breakdown of the numbers thus far in 2015:
- Total pretax contributions : $1900
- Total Employer contributions: $650
- Total Medical Expenses: $1487
Current Balance: $1063
At first glance it would appear that our medical expenses are higher than the last few years. However, what the numbers don’t reveal is that we used our HSA funds to pay for glasses and contact lenses for our family. This is something that has traditionally been paid for out of pocket. With the HSA, I actually feel more prepared for having a family member need to go to the doctor because I know that I have funds available to pay the bill, and don’t have make several phone calls to our medical provider and insurance company trying to make sure I know what’s covered, what’s not, and why.
Additionally, I have $950 worth of incentives that I haven’t earned yet. I’ll easily have those taken care of in the next couple of weeks, giving our HSA balance a nice bump.
Time To Invest My HSA Funds
Now that I’ve accumulated a healthy sum of money in my HSA, it’s time to revisit one of the advantages of having it; investing the funds for faster growth. I saw that I earned a few cents in interest from my HSA balance since it’s sitting in the default savings account for fast access. Surely I could do better than that!
My HSA allows me to search for a stock symbol, plug in an amount, and in the touch of a button a purchase is ordered. It also allows me to choose from a wide variety of stock and bonds. Finally, it let’s me create something called a basket in which I can buy and sell a grouping of stocks (which I specify) as a single entity.
While I like the flexibility of the investment options offered by my HSA, I’m not all that thrilled with it’s simplicity. I much prefer the investment options offered by my 401K program in which I can choose from investment funds that the managing brokerage creates, and tracks it’s performance. There certainly is room for improvement here.
Note: The inner workings of my HSA is specific to the product offered by my employer. If you have an option of having an HSA, check with your employer or HSA administrator for details of your specific HSA.
It’s often suggested that a person keep some amount of their HSA in the default savings account for fast access. For my personal situation I don’t see that as necessary since my medical provider sends everything to insurance before a bill shows up in my mailbox. From the time I receive the bill until it’s due is another couple of weeks, giving me plenty of time to sell some of my investments if necessary to pay the medical bill.
I’m not planning on needing the bulk of the funds for many years, so I could go a little more on the high risk side with my investments to try to achieve maximum growth. Unfortunately, due to the way my HSA is administrated, I may end up going with something on the low risk side, or consulting a financial advisor regarding how to best invest my HSA funds.
I know I made the right choice regarding my health insurance options by enrolling in a high deductible PPO with an HSA. But it’s now time to move on to the next step and maximize the growth of the funds in my HSA.
How about you all? Do you have an HSA? What investment options does your HSA offer, and how have you invested your funds?
Share your experiences by commenting below!
***Photo courtesy phasinphoto at FreeDigitialPhotos.net
