Health Savings Account

Today’s question: what are HSAs, FSAs, HRAs, CDHPs and HDHPs? It’s a jumble alphabet soup of letters but it makes sense when you understand how they all kind of work together. The simple answer is they’re different ways to give you more control over your health care dollars. Let’s use Gary to help us understand.

A CDHP or consumer driven health plan uses different ways of spending to put more responsibility and control on the hands of health care consumers like Gary. With one of these plans, Gary can use tax-free dollars for routine medical expenses with hospital coverage in place to protect against catastrophic medical expenses. With the CDHP, consumers pay lower premiums but more upfront costs for any care they need.

Here’s a more detailed look at some typical parts of a CDHP.

An HDHP or high deductible health plan is designed to help people like Gary pay less for their health care while still providing protection from catastrophic medical expenses. So if Gary is hit by a meteor or contracts a rare and debilitating disease, he’ll have protection from huge medical bills. Meanwhile, his premiums are lower, the deductible is higher, there are no copays for doctor visits, and preventive services that help him stay healthy are often covered completely. The plan also has a yearly cap on what he will spend out of pocket for his health care. HDHPs are often used in conjunction with HSAs to maximize health care dollars.

An HSA or health savings account is a way for people with high insurance deductibles to spend their health care dollars more efficiently by putting money aside to use when needed. With a health savings account, Gary puts a little money aside in a tax-free account every month similar to a 401(k) but only used for health care. He’ll dip into that account for care when he or a member of his family gets sick. And at the end of the year, the money in his HSA carries over to the next year.

An FSA or flexible spending account is similar to an HSA and that it puts pre-tax dollars into a fund to be used for medical expenses. However, while HSAs are almost always used with HDHPs, an FSA can be used with other health plans. Also, unlike an HSA, the money in an FSA expires at the end of the year.

An HRA or health reimbursement account is a health plan in which employees pay for their health care upfront and are reimbursed by their employer. If Gary goes to the doctor and pays cash for his services, his company will repay him for what he spent.

So to sum it up, FSAs and HSAs are money set aside to pay health expenses; HSAs are often used in conjunction with lower premium HDHPs; an HRA is money paid out of pocket that is reimbursed by your employer; and they’re all part of a CDHP or consumer driven health plan.

So now you know. Until next time, stay smart and stay healthy!

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