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Picking the Best Health Care Coverage for Your Family

These tips can help you navigate the varied, often-confusing choices many employers offer

PREMIUMS, DEDUCTIBLES, CO-PAYMENTS? Managing your health-care dollars is a challenge, especially as you weigh your employer’s menu of plans every year. Figuring out which plan makes the most sense for you and your family might seem daunting, but it could save you money in the long run. “Instead of reflexively choosing the same health plan during open enrollment season each year, it’s important to consider all your options to avoid paying for an expensive plan that offers little benefit for your needs,” says Danovan Clacken, Director, Health Savings Account Strategic Partnerships, Bank of America.

Here’s a look at three common health accounts, plus some insights to help you make the right choices for your family.

3 Most Common Health Accounts

These tax-advantaged plans can all be valuable, but they differ in key ways.

HSA

Health Savings
Account

credit card icon

MAX CONTRIBUTION (2020): $7,100 when enrolled in family coverage in an HSA-qualified health plan, $3,550 when enrolled in single coverage, plus an additonal $1,000 if 55 or older; employer may also contribute

WHO IS ELIGIBLE: Anyone with an HSA-qualified high-deductible health plan (HDHP)

TAX BENEFITS: No federal taxes on contributions, earnings, or withdrawals for qualified medical expenses

CAN FUNDS BE INVESTED? Yes

DO FUNDS ROLL OVER? Yes. Savers own the account.

FSA

Flexible
Spending Account

wallet with a credit card icon

MAX CONTRIBUTION (2020): Up to a projected $2,750; employer may also contribute

WHO IS ELIGIBLE: Employees of companies that offer one

TAX BENEFITS: No federal taxes on contributions, or withdrawals for qualified medical expenses

CAN FUNDS BE INVESTED? No

DO FUNDS ROLL OVER? Up to $500 a year, if employer allows, or company may offer a short grace period to use unspent funds. An FSA terminates when you leave the company

HRA

Health
Reimbursement Arrangement

first aid kit icon

MAX CONTRIBUTION (ANNUAL): Determined by employer, who funds the HRA

WHO IS ELIGIBLE: Employees who enroll in an HRA-qualified HDHP offered by employer

TAX BENEFITS: Employer funded. No tax benefits to the participant

CAN FUNDS BE INVESTED? No

DO FUNDS ROLL OVER? Yes, if employer allows; you lose the funds when you leave the company

In 2018, workers who were enrolled in a family-coverage HDHP paid 40% less in premiums on average than those who chose a traditional preferred provider organization (PPO), according to Benefitfocus.2 

When a High Deductible Pays Off

The fastest-growing type of health insurance today is a high-deductible health plan (HDHP) paired with a Health Savings Account (HSA). Americans own more than 26 million HSAs, a 12% increase over last year, reports Devenir Research.1 People can use the funds they stash away in their HSAs to cover the out-of-pocket medical expenses not covered by their HDHP. In 2018, workers who were enrolled in a family-coverage HDHP paid 40% less in premiums on average than those who chose a traditional preferred provider organization (PPO), according to Benefitfocus.2

“Choosing a health plan is a personal choice, but when an HSA-qualified health plan is selected, participants can save on their premiums and use those savings, and more, to contribute to a tax-advantaged Health Savings Account,” says Ed Shehan, Senior Vice President, Retirement and Personal Wealth Solutions, Bank of America. Unless you have a growing family and expect to run into increasing health-care costs, it may make sense to consider choosing an HSA-qualified high deductible health plan and keep the money you save in your HSA for future health-care expenses, he adds.

The Best Accounts to Pair with a High-Deductible Plan

An HSA may not be your only option to help you bridge the gap when you select a HDHP. Your employer might fund a health reimbursement arrangement (HRA) to go with an HDHP. “In the HRA, the employer provides some funding to help employees pay a portion of the deductible,” Shehan says. But HRAs don’t provide the same tax advantages as HSAs and aren’t portable if you leave your job, he notes.

With an HSA, you can dip into your account to cover out-of-pocket costs. Or invest the money and let it grow tax-free year after year, even into retirement. An HSA is the only savings account that is triple tax-free: You pay no taxes on contributions, earnings, or qualified withdrawals. Withdrawals from 401(k)s and traditional IRAs, by comparison, are taxable. (Learn more about how HSAs work here and ask your financial advisor how having one might help you cover the rising cost of health care as you grow older.)

How to Save with a Traditional Health Plan

If, based on the anticipated medical needs of yourself and your family, a traditional PPO plan with a lower deductible makes the most sense for you, you still have a way to save. Your employer may offer an optional flexible spending account (FSA), which lets you contribute pre-tax dollars to use to pay for out-of-pocket health-care costs. As with an HRA, the idea is to have money available for that calendar year. Neither account lets you save for health-care expenses in retirement, notes Shehan.

Finally, some employers may also offer a limited purpose flexible spending account for dental and vision expenses, typically in combination with an HSA. “Paying vision and dental expenses from a limited purpose FSA keeps more money in your HSA and allows it to grow,” says Clacken.

"More for you

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1 https://www.devenir.com/research/2019-midyear-devenir-hsa-research-report/

2 https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/high-deductible-plans-more-common-but-so-are-choices.aspx

This material should be regarded as general information on healthcare considerations and is not intended to provide specific healthcare advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.

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