It's that time of year — when your HR department starts sending emails and meeting invites to talk about your health insurance options for the coming year.
But before you simply opt into the same plan and benefits as last year, take a moment to consider setting up a health savings account or flexible spending account this year if you don't already have one in place.
Only about 13% of Americans currently have a FSA account, according to a survey of nearly 2,200 U.S. adults Morning Consult performed in conjunction with CNBC Make It. And only about 17% have an HSA.
But health experts say these accounts not only save you money, they can reduce the uncertainty around how you're going to pay for that trip to the doctor or a medical emergency.
These accounts are a great idea, Jonathan Wiik, principal of health-care strategy at TransUnion Healthcare, tells CNBC Make It. "They're basically tax-free savings accounts that allow you to pre-plan for your health care."
An FSA or HSA generally comes as an add-on benefit with health insurance, but these accounts can act as a buffer, giving you a savings cushion you can rely on if you do have to spend on out-of-pocket costs, or to reduce the cost of other health expenses, such as dental and vision.
When it comes to saving, HSAs are the more flexible of the two options. These accounts allow you to contribute up to $3,550 per year for self coverage and up to $7,100 for family coverage in 2020. And those funds, which you can choose to invest in mutual funds to potentially grow your savings, will roll over, year after year, if you don't spend them.
If your employer doesn't offer an HSA, you can sign up for an account through major banks and financial institutions. For example, Bankrate ranks The HSA Authority offered through Old National Bank and Fifth Third Bank as the top two options. Or check out HSASearch, which can help you easily compare the the fees, minimum deposit requirement and interest fees associated with different providers.
A health FSA is a little different. These accounts are offered through your employer benefits programs and you can contribute up to $2,700 in 2019, with limits expected to increase to $2,750 in 2020. You don't need to have a high-deductible plan in order to be eligible for an FSA — in fact, you don't need health coverage at all to sign up for one.
But any money you put in this account operates under a "use it or lose it" approach. That means you're supposed to spend everything you put in the account within the calendar year, or else you could lose out on that money. Some employers will allow you to spend the money through the first few months of the next year or even carry forward up to $500.
FSAs are pretty straightforward when it comes to the tax advantages. The money you use to fund these spending accounts comes directly from your paycheck, before taxes, so it reduces your taxable wages. This, along with funding toward investments such as a 401(k), can reduce the total amount of taxes you owe.
HSAs have a triple tax advantage: the money you put in is not taxed, any investment gains you make are not taxed and withdrawals are not taxed as long as the money is used for qualified medical expenses. If you take money out for other uses, you will face a penalty if you're under 65, and you'll also have to pay taxes.
About four in 10 American households would not be able to cover an unexpected $400 expense with cash, savings or a credit card, according to a Federal Reserve report. About 12% of Americans say they would not be able to cover the expense at all.
Yet when it comes to health care, the average American household spent almost $5,000 per person last year in out-of-pocket expenses and insurance premiums. That's a 101% increase from the roughly $2,500 per person that Americans spent about 34 years ago in 1984, according to an analysis of the Bureau of Labor Statistics Consumer Expenditures Survey by data company Clever.
And many times, those expenses can be even higher than anticipated. About 13% of Morning Consult survey respondents said the medical bills they had to pay before meeting their deductible were the biggest challenge when it came to their health insurance this year.
About 16% say the biggest challenge was the bills they expected their insurance to cover but were paid out at a lower level than anticipated or denied completely. That can include categories such as dental surgery or procedures deemed more cosmetic than mandatory. "Those savings accounts are nice for stuff like that," Wiik says.
Not only can these accounts be used to cover unexpected bills or the minimum needed to meet your deductible, but they can be used for routine expenses that may be otherwise out of pocket.
For example, if you need physical therapy for an ongoing condition, and you pay a $50 co-pay each visit, you can save $600 into your FSA or HSA for the year, so you already have money set aside to cover those costs.
"You're going to spend it anyway, so you might as well not get taxed on it," Wiik says.
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