HSA? HRA? FSA?

Posted By Paul

So just when you thought medical insurance couldn't get more confusing they added even more types of health related accounts for you to puzzle out. I've been trying to figure out what they all are so I thought I would share what I found.

Let's start with the FSA. For that I'm going to refer people to an earlier post which describes them in detail:
Are FSA's worth doing?

So then what is a Health Reimbursement Account (HRA)?
An HRA is an account setup by your employer that you can use for medical expense reimbursement. It's essentially your company telling you: "We're going to give you X dollars to help you pay for your health care costs this year."

Generally you have to submit proof of medical expenses to your company for reimbursement.

So what's the downside? As near as I can tell there really isn't one. However, the HRA might not be for everyone. For example, one thing I've seen are things where a company has two plans that you can choose from:

Plan A: Costs you $1000 a year and you don't get an HRA.
Plan B: Costs you $2000 a year and you get an HRA of $1500.

If you assume Plan A and Plan B have the same coverage, which one should you choose?

Well, if you are healthy Plan A might be better since you might have health care expenses that are so low that you might never even USE your HRA. However if you have some known health issues that makes you certain that you'll end up using that $1500, then Plan B becomes the better option.

Okay, so then the final account to cover is the Health Savings Account (HSA)

The first thing to know is that not everyone is ALLOWED to get an HSA. You only qualify for an HSA if you are in what is considered to be a High Deductible Health Plan (or HDHP...sigh all these abbreviations). If you are enrolled in an HDHP (your employer should let you know) then you are allowed to open an HSA.

So what does an HSA do? Well first lets cover how money goes INTO the HSA. Contributions come from YOU (not your employer like in the HRA), and contributions go in pre-tax (which is cool).

While in your account your money can be invested (the investment vehicles depend on the financial institution that holds your account usually a typical set of funds and a money market).

So how does money come out? You use it for reimbursement of medical expenses (by submitting paperwork to whoever is administering your HSA).

Now one cool thing about the HSA is that the money doesn't "expire" at the end of the year like it does with an FSA, it remains yours so if you have a lucky year you have that money saved up for the following year.

If you withdraw money from your HSA that isn't for a medical expense then you take a penalty, but from what I've read, this penalty disappears when you turn 65, so if you whatever money you don't use become yours without penalty when you turn 65, so in a way you can consider it part of your retirement funds.

Also, if you leave your job or change health plans such that you are no longer in a HDHP then your money doesn't disappear. If you leave your job your account remains yours. If you end up switching to a health plan later that ISN'T an HDHP then you're not allowed to contribute to your HSA any more, but you can still withdraw money for qualified expenses.

It seems to me that an HSA can be a good choice for people who are in a situation where they don't have many health expenses currently, but expect to in the future. They can put money in their HSA and if they are lucky enough to have a year without any significant medical costs then they have those contributions saved in case it happens the following year. If you manage to go several years without any significant medical costs then you could build up a pretty nice little rainy day fund for when something does happen.

I found a link to a pdf that did a nice comparison between the three accounts:

HRSFSAHSA.pdf

I also recommend the wikipedia entries as they all do a good job of explaining the accounts in further detail:

Wikipedia Entry - FSA
Wikipedia Entry - HRA
Wikipedia Entry - HSA

Tips For Open Enrollment

Posted By Paul

If you're like me then November means open-enrollment. It can be a hard to squeeze in enrollment along with the holiday season, but the choices you make now are some of the most important ones that you'll make for the year.

Here are some tips I thought I'd share on navigating the open enrollment process:

1) Go to the informational sessions - companies almost always host some sort of meeting where they give an overview of your choices, be sure to go to this meeting.

2) Come to the session informed - this can be a tough one since it's easy to want to come to the session and get the information you need there, but I've found that it's REALLY helpful if you can at least try to understand your options BEFORE you go to the meeting. That way you can listen in the meetings to see if your understanding of the plans jives with the info the presenter describes. You can even come prepared with questions, which is a great way to clarify the ins and outs of your various choices.

3) Understand your choices - often with healthcare plans it's not as simple as "the plan that costs me the most is the best". Often the "best" plan is a matter of the size and health status of your family. Which brings me to item 4...

4) Have an honest understanding of the health care needs of your family for the year - it's hard to predict what kind of health issues you will face in the upcoming year but you can at least make an effort to identify things that you KNOW will be coming up.

5) Discuss with your family - The decision you make will have an impact on all of them for the year, so bring them into the discussion early. Go over the information with them. Not only does it make them more informed about their health care plan but going through the pamphlets and literature with someone else makes the process slightly less mind-numbing.

7) Discuss with coworkers - For me this is often the most useful thing to do. Your coworkers are making the same sort of choices you are so it's a great way to discuss pros and cons of plans and maybe learn something from a coworker that you missed or misunderstood.

8) Consider the worst case and prepare for it - One thing I like to consider when comparing plans is the "worst case for the year" by that I just mean the annual out of pocket costs for a plan. If a plan says that the most you'll have to pay in the year is say....$10,000 then if you have that amount in your rainy day fund it helps me sleep a little better. If the maximum out of pocket for a plan you are considering is $10,000 and you only have $2000 in the bank then I might want to rethink your plan choice or try to add more to your rainy day fund.

9) Check the networks. There are so many plans that only pay benefits when you go to a health care provider in a particular network. It's easy to just assume that your doctor is in the network, but definitely take the time to check, it usually only requires a quick phone call or web page search.

It seems like health care choices are getting more and more complicated each year, so use every information resource available to you when making your decision.

Budget for fitness without a contract

Posted by Matt

My goal in posting this article is to dissuade at least one person out there from joining a health club. I've belonged to at least three or four different health clubs and have never been happy with any of them. I'll shoulder some of the blame for not doing enough homework to find the right kind of club, but I usually just wanted to find whichever one was closest to my house, figuring that that would make me more likely to stick to my regimen. Given that the larger club chains have the most locations, I usually ended up with one of those and the terrible contracts that came with them.

Most of you probably know how they operate already:

• You pay a huge upfront fee
• You pay a sizable monthly fee (usually around $30/month)
• You are required to pay this membership fee for a period of one or two years (or pay another exorbitant fee to terminate the contract).

Congratulations to the clubs for coming up with such a great business model. Most people gripe about it, but the clubs still seem to find LOTS of people to join. I joined a club several years ago that was just down the street from my house, but I hope it will be the last time I ever make that mistake.

My contract period ended in 2006. Since then, I've been getting letters from the club asking me to come back at a greatly reduced rate; $8.25 month! Why couldn't I have been paying that all along? This is another example of their deviously effective pricing. Obviously, they want you to pay as much as possible, but considering that they are not getting ANY money from me right now, they are trying to bargain with me a bit. If you really decide you want to join a gym, I'd suggest you negotiate the terms. They often run specials where they waive the upfront payment and my experience shows that their pricing is arbitrary and contains a lot of wiggle room.

That being said, I STILL don't think most people should join a gym. If you are like me, you might go regularly for a few weeks or months and then lose interest. Unfortunately, you are locked into that contract and have to pay whether you go or not! Such a waste; I always hated that.

Don't get me wrong, I see the value in keeping active, so here are some alternative suggestions:

1. Find an active hobby. This is what I did. I play indoor soccer now and love playing so much that I almost never miss a game (and I NEVER regret the cost).
2. Clean up your house. This is a two-for-one. Could your house use a little picking up anyway? (If you're spending money on a housekeeping service, shame one you.) I don't know about you, but I often break a sweat when I'm doing a whole house cleaning.
3. Play with your kids (if you've got them). My young son has me running up and down the street with him almost every afternoon.

Another option you might be thinking about is purchasing some fitness equipment for use at home. I know a very small number of people who actually use their home equipment. Take a quick look at Craigslist and count how many treadmills and stair climbers you see listed as "Great condition; hardly used!"

I'd be willing to wager that most expenditures on home equipment are a waste of money, but if you do want to try it out, consider testing yourself first. Try to come up with a comparable exercise that you can do at home without equipment and see if you can stick with that three times a week for a month or two. If so, then a machine might be a safe investment in your health. Or you may just find that you are happy exercising without equipment; win-win.

Just don't join a gym!