by WEX Health
Healthcare benefits in America are often misunderstood. While it’s terrific to have options, the sheer fact that there are more options (and each with their own acronym) has added to the confusion.
Research shows that Americans’ misunderstandings lie not only within the nuances of different healthcare plans but also within their basic functions. One survey found that 96 percent of Americans were unable to correctly define all four of these essential health insurance terms: deductible, co-insurance, co-pay and out-of-pocket maximum.
It pays to be informed, as the choices we make about our benefits during open enrollment and beyond each year have a direct impact on both our financial preparedness and our peace of mind. Here are three of the most common myths about healthcare benefits:
HDHPs vs. traditional health plans
MYTH: High-deductible health plans (HDHPs) will cost you more than traditional health plans, such as HMOs or PPOs
TRUTH: Not necessarily. In fact, you may end up with significant savings. You will spend less on monthly premiums with an HDHP, and preventive care is covered at 100 percent under most plans when you stay in-network. However, you will be expected to pay out-of-pocket for other medical expenses until you reach a certain deductible, which is higher than the deductible for traditional plans. HDHPs can also save you money because when you have one you’re allowed to open up a type of checking account that’s strictly for your healthcare expenses — a health savings account (HSA). And everything you put into your HSA, or purchase with it, is tax-free. Depending on your medical needs, the lower premiums and tax breaks that come with an HDHP may lead to monthly savings.
Are HSAs use-or-lose accounts?
MYTH: HSAs are use-or-lose accounts.
TRUTH: Don’t confuse an HSA with a flexible spending account (FSA). What these accounts have in common are their tax advantages:
- They’re not subject to federal income taxes.
- Earnings from interest are tax-free.
- Distributions to pay for qualified medical expenses are tax-free.
But while FSA accountholders are incentivized to use their balance by year’s end — although many companies now offer a several-month grace period or a $550 carryover — HSA funds can accumulate indefinitely (and even be invested!).
HSA spending and saving
MYTH: An HSA is for healthcare spending only, not a savings account for the future
TRUTH: Most people don’t know they can leverage their HSA as a retirement savings tool. Ideally, your HSA will primarily be used for saving money for your healthcare expenses, even those during retirement, while an FSA is better suited for spending on more immediate healthcare expenses. Either account can save you money, as they allow you to pay all your medical bills, and even for many over-the-counter items, without paying taxes on them. But if you’re diligent about saving into your HSA, you’ll find it’s the most cost-effective way to save for the considerable healthcare expenses most of us accrue in retirement. And even if you don’t have healthcare costs, after you turn 65, you can withdraw the money for any reason without penalty (though you will then have to pay taxes on it).
Learn more about your healthcare benefits by reading our Health Trends & Insights blog.