How it works example - single coverage
Lucy enrolls in a High Deductible Health Plan. Her plan is effective Jan. 1, 2010, and has the following features:
- $1,500 single deductible
- 80 percent coinsurance for in-network providers
She also has a Health Savings Account. Even though Lucy and her employer can put up to $3,050 in a Health Savings Account, Lucy funds the account up to the $1,500 deductible:
- $500 from her employer
- $1,000 from Lucy's tax-free paycheck deductions
Year 1
Lucy's healthcare costs are higher than usual because she breaks her leg. Her expenses for the year total $2,715:
- Hospital doctor's services ..... $650
- Hospital facility cost ..... $350
- X-rays at hospital ..... $200
- Specialist office visit ..... $315
- Six physical therapy sessions ..... $1,050
- Two prescriptions ..... $150
How Lucy uses her HSA for healthcare costs
- HSA funds ..... $1,500
- Total cost of services .....$2,715
- Lucy uses HSA to pay deductible ..... $1,500
- Balance of cost of services ..... $1,215
- PPO plan pays 80% of costs ..... $972
- Lucy pays remaining 20% ..... $243
- HSA funds remaining ..... $0
Summary - When the accident happened, Lucy used the HSA dollars deposited so far to cover her deductible. She wrote a check for the rest and then got reimbursed from her HSA when more money went into the account. After Lucy used the HSA to meet her $1,500 deductible, her health plan helped her pay the remaining $1,215. The plan paid 80 percent coinsurance, and Lucy paid the other 20 percent out of pocket. Because she used all the money in her HSA, Lucy has a zero balance at the end of the year.
Year 2
Lucy's healthcare costs aren't as high as last year. She has an illness that requires two doctor's office visits and two prescriptions. Her expenses for the year total $435:
- Two office visits ..... $200
- Two prescriptions ..... $235
How Lucy uses her HSA for healthcare costs
- HSA funds ..... $1,500
- Total cost of services ..... $435
- Lucy uses HSA to pay ..... $435
- HSA funds remaining ..... $1,065
Summary - Because her healthcare expenses were only $435, Lucy didn't use all of her HSA funds. She also didn't have to use any of her take-home pay to cover out-of-pocket costs. At the end of the year, she has $1,065 left. She can use the money tax-free for eligible healthcare expenses in the future and even invest it tax-free. She can also use these funds to reimburse herself $243 for the amount paid in year 1.
How it works example - family coverage
Doug chooses a High Deductible Health Plan that covers himself, his wife Tina, and their two children - 4-year-old John and newborn Julie. Their plan is effective Jan. 1, 2010, and has the following features:
- $2,500 family deductible
- 80 percent coinsurance for in-network providers
Even though Doug and his employer can put up to $6,150 in a Health Savings Account, Doug funds the account up to the $2,500 deductible:
- For the first year, Doug's employer contributes $500, and Doug adds another $2,000 in tax-free paycheck deductions.
- For the second year, Doug's employer deposits another $500. Doug adds $2,000 to the account through tax-free paycheck deductions. He also has the $1,725 left over from Year 1.
Year 1
Both children get sick once during the year. Not surprisingly, they spread the illness to their dad - but Tina manages to avoid it. Doug, John, and Julie each visit the doctor once. Doug and John need a prescription to treat the illness, and John also gets some lab tests. The family's expenses for the year total $775:
- Three doctor's office visits ..... $300
- Lab tests ..... $100
- Three prescriptions ..... $375
How Doug uses an HSA for healthcare costs
- HSA funds ..... $2,500
- Total cost of services ..... $775
- Doug uses HSA to pay ..... $775
- HSA funds remaining ..... $1,725
Summary - Because the family's healthcare expenses were only $775, Doug didn't use all of his HSA. He spent his employer's $500 contribution, plus $225 of the money he put in tax-free. At the end of the year, he's spent none of his take-home pay on out-of-pocket costs, and he still has $1,725 left to use for future healthcare expenses.
Year 2
This year, John is injured - leading to X-rays, a three-day hospital stay, knee surgery, and two prescription drugs. On top of that, both Tina and Julie get sick and have to go to the doctor. The family's expenses for the year total $7,710:
- Hospital care ..... $3,000
- X-rays ..... $250
- Surgeon and anesthesiologist ..... $4,000
- Two doctor's office visits .... $200
- Two prescriptions ..... $260
How Doug uses an HSA for healthcare costs
- HSA funds ..... $4,225
- Total cost of services ..... $7,710
- Doug uses HSA to pay deductible ..... $2,500
- Balance of cost of services ..... $5,210
- PPO plan pays 80% of costs ..... $4,168
- Doug pays remaining 20% with HSA ..... $1,042
- HSA funds remaining ..... $683
Summary - Doug used the $2,500 in his HSA to meet the plan's deductible, leaving $1,725 in his account. After meeting the deductible, the family's health benefits paid 80 percent of the remaining healthcare costs. Doug paid the other 20 percent with his HSA. He didn't have to use any of his take-home pay to cover out-of-pocket costs, and he still has $683 left to use for future healthcare expenses.
