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By Pam Leibfried
Earlier this week, in Part 1 of our two-part series, we reviewed the basics of Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). Today, we’ll delve into a few of the categories of expenses that you need to account for when you are calculating what amount you should contribute to your FSA or HSA for 2018.
For the purposes of this article, we are discussing only cost estimates for HSA and FSA accounts through employer-provided benefit plans for current employees. COBRA plans are different, so if you have been laid off, the limits and rules below may not apply to you, and you’ll need to consult your COBRA plan documents. Similarly, if you are self-employed or don’t get health coverage from your employer, your coverage options may be different. Healthcare.gov provides guidance on the process of pricing medical policies if you are not covered by an employer healthcare plan.
Medical coverage varies widely from one medical plan to another. Although the information below provides tips on some of the general categories of expense you may incur, it is in no way an all-inclusive or universal list of all potential medical expenses for all plans. Carefully review the information provided to you by your company’s benefits team so you can more accurately estimate the potential expenses you’ll face under your particular plan.
Medical insurance premiums can’t be reimbursed from the funds in your HSA or FSA, so the amount of your premium shouldn’t be included in your HSA or FSA contribution estimate. You should, however, account for the amount of your premium in your monthly budget.
Also, the amount of your premium for a traditional health insurance plan should factor into your decision on whether you enroll in coverage on a pre-tax or post-tax basis (see the “Should you pay your insurance on a pre-tax or post-tax basis?” section of Part 1 of this two-part series).
Many traditional medical insurance plans require patients to pay a copayment whenever they see a doctor. These copayments are reimbursable by FSA funds. (Note that if you have HDHP/HSA coverage, you don’t pay copayments.) If your insurance requires copayments, make an educated guess on how many times you’ll need to see a doctor over the course of the year and multiply that count by the amount of your copayments.
Be sure to check if your insurance has higher copayments for specialists. For example, my old insurance required a $20 copayment when I saw my primary care physician, but a $30 copayment when I saw a specialist. So if some of your anticipated appointments for next year are with specialists and specialists cost more under your plan, be sure to include the correct amount in your calculations.
Most medical insurance plans (and all HDHPs) have a set deductible you must meet before the plan coverage kicks in. The medical expenses you incur before meeting your deductible are generally reimbursable from your HSA (if you have an HDHP) or from your FSA (if you have a traditional health insurance plan). Also, if copayments (see above) count against your deductible amount, don’t add them into your calculation twice.
Whether you have traditional medical insurance or an HDHP with an HSA, your employer plan will have a set “out-of-pocket” maximum amount that represents the most the covered employee will have to pay during a calendar year. The out-of-pocket maximum amount can vary widely depending on the medical plan option you select. Typically, lower premiums equal higher out-of-pocket maximums.
Whether you need to contribute the entire out-of-pocket maximum amount into your HSA (or the max FSA contribution into your FSA) just in case you have high expenses depends a lot on your health and the medical needs you anticipate. If someone in your family has a chronic disease or if your doctor has mentioned that you may need a knee replacement or rotator cuff surgery, you might budget more. But if you are in very good health and hope to only see a doctor for your annual checkup, you might budget less.
With HSAs, prescription costs typically count toward your deductible and out-of-pocket maximums, but verify that fact in reviewing your benefits enrollment materials. With traditional medical insurance, some plans do not include copayments or prescription costs in the tally of costs incurred against your out-of-pocket maximum. If you have a traditional plan, check your coverage to see what counts against your maximum amount and what doesn’t, so you can budget accordingly.
While being treated for cancer five years ago, for example, I met my out-of-pocket maximum the week I started chemotherapy in early April. But because my insurance plan didn’t count copayments against my out-of-pocket maximum amount, I still had to pay copayments for prescriptions and doctor appointments for the rest of the year. This increased my actual out-of-pocket expenses to $600 over my official out-of-pocket maximum amount.
If you are on long-term, maintenance prescriptions, include them in your contribution estimates, but don’t double count them. For example, don’t set aside dollars for prescriptions separately if they count against your deductible and you’ve already included your entire deductible amount in your estimate of expenses.
If you or other family members wear glasses or contact lenses, you’ll probably need to plan on at least one visit to the eye doctor to confirm your prescription. But do you need to budget for new eyeglass frames? Make an educated guess based on the age of your current frames and how much you value being fashionable and trendy with your eyewear. Most eye doctor, eyeglass and contact lense expenses are reimbursable under both HSAs and FSAs, but confirm your plan coverage levels and reimbursement eligibility before calculating your contributions. For example, some vision plans cover replacement eyeglass frames only every other year, while some FSAs reimburse for contact lenses, but not lense solutions and other related expenses.
Most dental expenses outside of routine cleanings are difficult to predict. An exception might be orthodontia. If you or your child will need orthodontia, do some research on what your out-of-pocket costs would be for that procedure under your dental plan and consider upping your contribution amount by that much for next year. Note that some dental plans have lifetime maximums for orthodontia, so if a family member has already maxed out his or her lifetime coverage but needs more orthodontia care, be sure to account for the lack of coverage when estimating your out-of-pocket costs.
Pam Leibfried is a marketing content specialist whose love of words led to a writing and editing career. After a brief stint teaching English, she transitioned to corporate communications and spent 20 years at The Nielsen Company before joining Alliant’s content development team. Early in her work life, Pam’s friend Matt explained the benefits of a 401(k) and her dad encouraged her to start a Roth IRA. Their good counsel prompted her to prioritize retirement savings, which just might enable her to retire early so she can read more and live out the slogan on her fave T-shirt: “I have a retirement plan: I plan on quilting.”