by Aaron Anspaugh, Former Features Editor of the Purdue Review
Many Purdue students are getting ready to enter the workforce, relatively oblivious to what their healthcare situation will be when they start their first real job. Some have been on their parents’ health plans their entire lives (up to the ripe old age of 26 thanks to Obamacare), and they do not have any clue what to expect when they get into the real world. Even the most well-informed of conservative/libertarian college students might know little beyond the fact that Obamacare makes things a whole lot worse. I come from the land of the grown-ups with a message: there is a tool that you can use to fight socialism in medicine, save for the future, and take responsibility for your own health expenses. I’m talking, of course, about a Health Savings Account.
When I first started working at Ford Motor Company back in fall, I was given several options for healthcare. One of them included the option for a Health Savings Account, or HSA. In order to qualify for this option, I would have to choose a plan with a “high deductible.” The government decides what is considered “high” ($1,250 for a single person, $2,500 for a family), only allowing people above that threshold to open an HSA.
The deductible is the amount that a person with insurance is required to pay before the insurance kicks in. A higher deductible, however, usually comes with a lower monthly premium, which is the amount a person has to pay monthly for health insurance. Basically, with a high deductible plan, you pay a lot less per month, but you will have to pay more up front for healthcare costs. When you are healthy, this is great, since you saved a ton of money in premium costs. When health isn’t so good, the sudden deluge of high costs might be overwhelming. This is where the HSA steps in, allowing people to save up for those unfortunate events, all while encouraging them to stay healthy and be frugal.
An HSA allows an individual to put pre-tax income into an account that will be used specifically for healthcare costs. HSAs vary, but mine can be spent on pretty much anything health-related: copays, hospital bills, prescription drugs, dental costs, and even laser eye surgery. Insurance is obviously still needed for catastrophic events, but an HSA makes paying the “high deductible” much easier.
How much money should one put into an HSA? It really depends on how safe you want to be against unexpected healthcare costs. Having an HSA balance higher than your deductible will help protect against an unexpected night in the hospital that maxes out your deductible. Insurance companies sometimes can still charge you beyond your deductible, however, in the form of copays, coinsurance, or other mechanisms. There is a cap to this called the out-of-pocket maximum which is also limited by the government. If you are able to save up enough money in your HSA to have more than this out-of-pocket maximum, then you are literally completely ready for any healthcare expense that might arise during the year.
Additionally, any money you put into an HSA is yours forever, and rolls from year to year. Being healthy one year allows you to have extra saved for future years. At least in my situation, the money resides in an interest-bearing account and can even be invested if enough is saved. If there is any money left in an HSA by retirement age, it can be drawn on just like any other pre-tax retirement fund, meaning that staying healthy and shopping around for the lowest medical costs can lead to a better funded retirement.
The HSA sounded like a good option for a free market guy like me, so I decided to go for it. I was pleased to find out that Ford and many other companies actually encourage employees to use HSAs by giving some money into accounts at the start of the year. This was very helpful for someone in my position, since I hadn’t had time to save up for medical emergencies yet. I had to provide an amount to contribute per year, which is automatically taken out in small portions from each paycheck. There are limits on how much an individual can contribute in one year, which does include what is provided by the company.
The coolest part about my HSA so far has been using it. When I opened the account, they sent me a debit card that was directly linked to my account. When I had some medical expenses come up, I was able to simply use the card at the doctor’s office and pharmacy, no receipt submission or waiting required. I also was able to use the HSA website to pay a medical bill online. The website is set up very similarly to a bank account, with details on each deposit and transaction.
While it may not be the right option for everyone as they graduate and start their careers, the option has been growing in popularity over the last few years. A January 2012 HSA Census by AHIP (America’s Health Insurance Plans) Center for Policy and Research showed that 13.5 million people are now covered by the combo of high-deductible insurance plans and HSAs. This is up from 11.4 million in Jan. 2011, 10 million in Jan. 2010, and 8 million in Jan. 2009. As government tries to exert more power over people’s healthcare choices, Americans are flocking to HSAs as a method of retaining some control over their lives.
Even Dr. Ben Carson, the famous neurosurgeon who spoke out against Obama’s policies at the 2013 National Prayer Breakfast (with the President sitting 10 feet away), proposed HSAs as a method of getting government out of people’s personal business. Health Savings Accounts promote free-market capitalism and individualism by enabling people to take control of their healthcare costs. They are like an injection of market forces into the vein of a healthcare system that is slowly being poisoned by collectivism. Keep that in mind as you head out into the real world. Maybe you too can sign up for an HSA and begin your own personal fight against government-run healthcare.