Money Lessons From Our Moms and How to Budget With an HSA on a High-Deductible Plan

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20:52Sean Pyles:We're back and answering your money questions to help you make smarter financial decisions. Our question today comes from Marky in Milwaukee, who sent us a text. This year, due to changes in healthcare policies, my employer switched us to a high-deductible healthcare plan with an HSA. At first, I was excited about having access to an HSA, but I'm starting to feel overwhelmed by the actual costs. For example, I recently went to my primary care provider for a routine illness-slash-injury visit. I was initially quoted$30, but later found out my insurance only covered$85 of the visit, and I now owe about$500 out of pocket.

21:27Sean Pyles:I also attend weekly therapy and my cost per session has increased from a$30 copay to about$170 per visit. Because I just opened my HSA, I haven't had time to build up savings in it and my medical expenses are coming in faster than I can fund it. It's gotten to a point where I feel like I can't afford to go to the doctor. My question is, how should I adjust my budget and financial planning to handle these higher, less predictable healthcare costs under a high deductible plan?

21:54Elizabeth Ayoola:Oh my gosh, I so empathize with you, Marky. I use the HSA and HDHP too, and that is definitely a tricky one. But to help us answer Markey's question on this episode of the podcast, we are joined by personal finance nerd, Kate Ashford. Welcome back to Smart Money, Kate. Hi, guys.

22:12Sean Pyles:Hey, Kate. As ever, we're having you come on to talk about a thorny, complicated, technical, medical related adjacent issue. So great to have you. Yeah, happy to help if I can. Let's start by explaining a couple of terms, HSAs and HDHPs. So starting with the latter, a high deductible health care plan is a type of health insurance plan that you probably guessed has a high deductible. For 2026, that means that your deductible is at least$1 ,700 for individual coverage and$3 ,400 for family coverage. And the maximum that you'll pay out of pocket is$8 ,500 or$17 ,000 respectively. And an HSA, or a health savings account, is a type of savings and investment account that you have access to only when you are in a high-deductible health care plan.

22:57Sean Pyles:HSAs have some amazing tax advantages. So, Kate, can you give us any more info about HSAs and anything else you want to add about HGHPs? Yeah, absolutely. So you'll hear a lot of things about HSAs being triple tax-advantaged. And that's because when you put the money into your HSA, it comes out pre-tax, or if you put money in after tax, it's deductible. All the money in the HSA can be taken out tax-free as long as you're putting it toward qualified medical expenses. And essentially, most medical expenses are qualified. HSAs usually have the option to invest the money. So as long as you are investing the money, if you earn anything on that money, that investing earnings is tax-free as well.

23:34So as an account goes, it's really like sterling. It's got a lot of advantages. And it follows you from job to job. It rolls over from year to year. So it really is a great account all the way around.

23:45Sean Pyles:Yeah, it's always impressive how much you can use your HSA for. You can even buy things like sunscreen with your HSA funds. What?

23:53Elizabeth Ayoola:Why didn't I know that? I need some. My tube has almost ran out, so I was buying some sunscreen with my tube. Well, I always like to tell people you can buy period supplies. What? That too? Yep. I just bought, okay, TMI, but I just bought some period supplies yesterday and they are expensive. They are expensive.

24:10Sean Pyles:Would be great to live in a world where that was free because everyone needs that stuff at some point. That's right. Okay. Well, another amazing benefit of HSAs is that you can reimburse healthcare expenses that you incurred while you were on your high deductible plan using HSA funds years down the road. So say Markey incurred some expenses right now, doesn't want to use the HSA funds to pay for them. If they keep all of their receipts, they can get their money back at a much later date once they have more saved up. And that can be a really helpful way to cost some money back and get some extra cash in retirement.

24:42It actually sort of functions like a whole different kind of retirement plan. And you're going to have health care expenses in retirement, so there's no fear that you're not going to be able to get this money back. I'd also like to add that while the numbers for deductibles and out-of-pocket maximums that you just went through are high, they're scary sounding, but high deductible plans usually have lower premiums than your traditional HM1 PPO plans. And a fair number of employers also will put money into your HSA, which also kind of helps with the costs. So and furthermore, a lot of high deductible plans don't have deductibles as high as they can go legally.

25:16So it's not necessarily as scary as it initially sounds.

25:19Sean Pyles:Yeah. One thing I'm curious about is how much Markey is putting into their HSA and what, if any, match they're getting from their employer, because that makes it so much easier for me to contribute and save in my HSA.

25:30Elizabeth Ayoola:Yes, the match is key. So it would be nice to know if Markey is getting one. A big decision anyone who has an HSA has to make is whether they're going to use the funds in the account for ongoing medical expenses or they have another option, which is to leave it for years and years and hopefully use it for health care expenses in retirement and hopefully invest that money so that it can grow. The latter option can be really appealing to some people because you can generally invest the funds that you have in a health savings account and the tax advantages we outlined earlier are there as well. But sometimes you just need to cover a medical bill now, like in Marquis' case, and the funds in an HSA might be their only option.

26:09Elizabeth Ayoola:So, Kate, how do you balance this decision? So this is really just going to come down to your financial situation, right? So if you can pay your medical expenses easily without putting them on a credit card or cleaning out your emergency fund, then you may want to consider investing within your HSA because it does have growth potential. But it depends on your time horizon. If you're like, I can pay this out of pocket right now, but I'm going to need the money on my HSA within 12 months, the juice is probably not worth the squeeze on that. You probably should just take the money from your HSA and pay the bill.

26:40Investing probably isn't going to net you much of a gain for a short-term need. If you can let that money sit for a couple of years, three to five years or more, or until retirement, ideally, but of course not everyone can do that, investing might make more sense. But I would like to note, just to muddy the waters, check out the investment arrangement for your HSA as well. Those accounts do offer investment options, but a lot of them require that you hit a minimum balance, like$1 ,000 or$2 ,000 before you can invest. And some of them come with administrative fees, which can kind of eat away at your earnings.

27:11It may not be the thing that you want to do right away. I also find the interfaces are not super friendly. I've had a little trouble with mine in that way. So I've actually decided not to invest mine. I think it's really great for those first two tax advantages. And the third tax advantage kind of depends on your comfort with investing and the interface you're working with.

27:28Sean Pyles:Yeah. Yeah. Folks should also know that they might be able to open an HSA through any old bank outside of the institution that they are kind of presented with through their employer. As long as you're in a high deductible health care plan, you are able to access an HSA and you're not limited to the one that you have through your employer. So you might want to compare your investment options and fees from what your employer is offering you and what you might be able to get at another bank. Okay. Now, when it comes to high deductible plans, they're often best for those who have very minimal health care expenses or those who have a lot of health care expenses.

27:59Sean Pyles:And those in the middle, it seems kind of like Marky is there and I'm actually kind of in this place too right now. People in the middle can really feel the pinch. It's kind of the worst of both worlds here. Kate, can you expand on that? So you kind of have to do the math on this and it's a little tricky, but we're going to do it. So one thing to keep in mind overall is that premiums for a high deductible plan tend to be lower and people tend to discount that because they don't see that money coming out of their paychecks. But you really do have to think about it because if you're paying $200 less a month, that's$2 ,400 less a year, which really helps that math work out a little better.

28:34Plus, your employer might be putting some money into the HSA. So you might start out paying less premiums, getting money from your employer. And if you're using minimal health care, you're probably not going to spend very much to begin with.

28:46Sean Pyles:That's a really helpful point. And I think people who are just switching over to an HDHP with an HSA, they might want to look at their pay steps from the year prior when they were on a different kind of plan, see just how much was coming out of their paycheck to pay for premiums on a regular basis, and consider contributing that to your HSA because it's basically netting out for you there. Again, if you've got sort of minimal healthcare expenses, one thing to know about HDHPs is that your annual physical and vaccinations are usually covered by the plan. So if you're not spending a lot of healthcare anyway, you're probably not going to spend any more than you're already saving on premiums and maybe an employer contribution.

29:20So that math kind of works out.

29:22Elizabeth Ayoola:Yeah, my son and I, well, my son, obviously, he's my plus one and he's my plus one on my health care plan, too. And we don't spend much on the doctor every year, thankfully. So we usually go for our checkup. So I actually have not hit my deductible so far. And I've had HSA and HDHP for about three years now. And like you said, Kate, I also get an employer contribution. But yeah, I guess the point is it's easier for me versus marquee because I don't have to go to the doctor often. So I have time to kind of build up that savings. All right. So people who don't use their health care a lot aren't going to be spending much regardless, like myself.

29:58Elizabeth Ayoola:And they should consider themselves fortunate, like myself. But it is a different story for people who end up spending a lot on health care, right? Because they have to pay a high deductible, but it can actually end up costing them less overall than if they went with a non-high deductible plan. So it does seem counterintuitive, but for people with a lot of health care expenses, you're probably going to find that you're spending a lot out of pocket either way. But your expenses are less kind of out of the gate with a high deductible plan. You're paying less in premiums. You might have an employer contribution.

30:28So you might be spending less overall. And in fact, that's been true for me. We are high health care users. We are high health care users every year. I don't know. We seem to be high maintenance. But this actually makes things really predictable for us because we know we're going to hit a deductible every year. So we make sure we have enough to cover that. And after that, everything is kind of covered. We usually hit it about mid-year and from July on, it's smooth sailing. There's no more spending on health care for us.

30:54Sean Pyles:That is a lot of spending on health care, considering that you're a family of how many people? We are a family of four. But, you know, it just takes a few things. Allergy shots are surprisingly expensive, depending on when you're ordering that stuff. I had a surgery one year. I tend to injure myself. I get a lot of physical therapy. So it all kind of adds up over time. I want to go deeper into people in that less desirable middle area that we mentioned before, where you're spending out of pocket on your health care and it's beginning to strain your budget, but you haven't yet hit your deductible.

31:26Sean Pyles:Or you might not for the year, but you're still kind of chipping away at that deductible, hoping that maybe at some point it'll become easier for you. So how should folks square this circle? This is a tougher equation. So it's a cost-benefit analysis. You're going to need to think about how often you see the doctor, how much are you typically spending each year for care, how much are you saving on premiums, again, by going with a high-deductible plan, and does your employer give you anything for your HSA? And importantly, do you have enough money to cover those upfront costs? Because high-deductible plans may be cheaper, but those costs are very front-loaded.

32:01So I like to think about this as kind of like a math problem when I explain this to people because people don't have a good sense of these plans. Let's say that you save$2 ,000 by going up a high deductible plan and your employer puts$1 ,000 a year into your HSA. So you're essentially already just out of the gate$3 ,000 ahead on health care costs and you haven't seen a doctor yet. So you have to kind of think about do you think you're going to spend more than$3 ,000 on health care this year just sort of estimating? estimating and considering that, of course, this is all guesswork because anything can happen at any time.

32:34But based on previous experience, do you think you can come in under that number, in which case it's still cheaper for you?

32:41Sean Pyles:Yeah. I think what people are experiencing is that it's actually really psychologically painful to be spending the money out of pocket versus when you're not seeing the money, when you're on a non-high deductible plan, it doesn't feel like you're spending anything oftentimes because it's just already out of your paycheck before you even see the money hit your account. So I think you're right that people need to sort of reframe their thinking around premiums and how much they're actually saving, because they are still likely to come out ahead with a high deductible plan.

33:07Elizabeth Ayoola:And then, Kate, I have a question as well. I love that Mark, he said that they were excited to start, you know, a health savings account. But what about the pre-planning before opening that health savings account and kind of going, do I have enough to fund my medical expenses before I build up the amount, you know, that I need monthly. This sort of goes into the same sort of thinking around emergency funds, right? We have to make sure we have enough cash to cover that thing that's coming up. So this can be a great plan for people, but mostly it's a great plan if they have the money to cover those upfront costs.

33:41I mean, I've had a high-digital plan for years. It is always the best plan for us. It is always the cheapest, but those first several bills of the year are always like, what are we doing? Why do I owe this? And it feels like it just keeps coming. And I have to keep in mind, it's fine. It's fine. It's fine. It's cheaper overall, but it is mentally, it's hard.

34:03Sean Pyles:Yeah. And you have the money set aside for this, but beyond it being difficult in the beginning of the year, your first year alone on a high deductible plan can be especially difficult because you don't have that money saved up in your HSA. And you may not know what your health care expenses are going to be because health care expenses can vary greatly from one year to the next. So you're still getting a feel for this new kind of insurance coverage. And I would really recommend that Markey look back and document their doctor's visits for maybe the past 12 months and think about how much they're going to be paying throughout the year to take some of the guesswork out of the equation.

34:37It's smart to put together as much information as you have because health care is a giant guess, right? And no one plans to have an emergency or a big health revelation. So you just, you have to do the best with what you have.

34:49Sean Pyles:Yeah. And knock on some wood to hope that you stay healthy there. Exactly. I also really empathize with Markey's situation. You know, they're going to the doctor thinking that this is going to cost a certain amount, only to find out that it's going to cost them a lot more. Don't get me started. Yeah. That can really throw your budget into a tailspin. And I just had a similar situation where I went to a couple of doctor's appointments and they couldn't tell me how much it was going to cost me. I went to a physical therapist and a sports acupuncturist, kind of specialized people, but I needed to see them for my legs.

35:20Sean Pyles:And two medical bills and$500 later, I found out just how much those were going to cost me. So what I'm wondering, Kate, is whether there is a reliable and maybe even easy way to know how much a medical appointment is actually going to cost you. Sean, I wish I had a good answer on this, but the answer is no. Yeah, I had a feeling that was going to be the case. These plans were originally kind of introduced with the idea that we would be able to shop for our own healthcare. Guess what? No, there's really no way to do that unless you're doing something really specifically straightforward like a blood panel from, you know, Quest Labs or whatever.

35:57And you know that this blood panel costs this amount of money. I once tried to get an MRI and I tried to find out how much I was going to pay for the MRI. I wrote a piece about it because I was like, surely this will, I'll be able to find this out. Could not. Could not get an answer from anyone. I called seven or eight different places. No one could tell me how much the MRI would cost. Several of them were like, it'll just be this much after your insurance covers it. I'm like, no, no, see, I cover that first part. So, yeah, people don't, they don't fully understand this kind of plan. No.

36:27Elizabeth Ayoola:And I just want to say I choose when I'm American versus British. And when it comes to health care, I'm British because how ridiculous. The first time that I came back to the doctor after moving back from the U.K., I was really, really vexed with a poor front desk person who couldn't tell me how much my treatment was going to cost. How am I supposed to shop around if you cannot tell me how much my treatment costs?

36:49Sean Pyles:So do you go back to the U.K. for health care ever?

36:52Elizabeth Ayoola:Well, it's complicated. I used to, but I can't anymore because I'm now an American. So right now I'm American, but you know. All right, let's get onto the budgeting part of Marquis' question. Now, in an ideal world, they would be able to put some money into their HSA, hopefully get a match from their employer to help build up that fund, and then they could leave it to grow over time, as well as cover regular visits out of pocket. But that does not seem feasible for Marquis' budget right now, which is why they are writing us. How would you handle this situation, and what advice do you have for Marquis, Kate?

37:23Yeah, this is a tough one because Marky's already into the plan year and they're getting hit with bills. And I'm here to say that feels awful. And particularly if you don't feel like you have the money to cover them. So, I mean, typically my advice for people considering an HTHP is make sure you have enough money to cover that cash. But given that we're now here, Marky's kind of behind the eight balls. So Marky would sort of proceed like someone who is having trouble paying medical bills. That would sort of fast forward them into that kind of situation. They would maybe talk to the medical providers billing people, see if they can set up a payment plan, see if it's possible to negotiate a lower rate.

38:00I've never really been successful at this, but I've tried and possibly it could work. Some places have financial assistance available. The payment plan is probably going to be your most successful approach. generally there's no interest in that kind of thing. So you can just spread those payments out over time. And then maybe it feels a little bit more like your typical medical expenses.

38:19Sean Pyles:I want to talk about the idea of saving money by foregoing medical care, because it seems like Marky is considering that, which makes me nervous for them because we know that preventative care is often one of the best things that you can do for your body. And also it saves you a lot of money over the long run too. And especially if Marky is paying for therapy, your mental health is really important. So I would urge them to maybe not skip out on taking care of your mind and your body, but maybe try to cut costs elsewhere. How do you think about that balance, Kate? To the extent that they can find ways to get care for less, possibly.

38:57Certainly there are clinics that offer easier types of care for whatever your kinds of issues are. Sometimes employers offer mental health care that is subsidized. So it could be that there are other places to find that care for less. And possibly also, you know, if you explain your situation to your providers, they might agree to go to a lower rate for you for some period of time until you can kind of catch up on that. Okay.

39:24Elizabeth Ayoola:And then what about how to handle expenses going forward, Kate? Because it seems like Markey has more medical bills to come and we don't want Markey to go of debt. Margie's going to have to figure out how to either put money away toward this kind of plan next year or think about how to cut expenses elsewhere because this is going to be an ongoing expense if they're going to have a high deductible plan. If this is not a financial structure that works for them, they might want to go back to a traditional HMO or PPO.

39:54Sean Pyles:Yeah, although I get the impression that their employer kind of forced them into this high deductible plan, in which case maybe they would want to shop around for another job, which is easier said than done in this current market. Another job. I wasn't expecting that. Oh, boy. That's tougher advice. I really wish we could just... Reform our healthcare system. Yes. If the individual market was less crazy, going out to the individual market is not a better option either.

40:20Elizabeth Ayoola:Sometimes I wonder, do they even care about us? Do they even want us to be healthy? Because why make it so difficult inexpensive. Why?

40:27Sean Pyles:Great questions, Elizabeth. We'll have to tackle that on our political podcast. But I'm thinking that these healthcare expenses might be a good candidate for a sinking fund if Marky has a little extra room in their budget. They could put just enough into a specified savings account for their deductible. And people might be thinking, isn't that just what an HSA is for? And the answer is kind of yes. But personally, I prefer to keep my money in my HSA and use that as my longer term retirement health care fund. And for expenses that I'm paying out of pocket, like my bills I mentioned earlier, I'm just kind of biting those and paying it out of my general checking account, which isn't fun to do.

41:06Sean Pyles:But hey, at least I have my legs in a working order and that's what the money is for, right? Yeah. So to the extent that this can be something they think about going forward and plan for going forward, that's going to be the better approach. Certainly now they know how much they're paying for things. Once you see that you're paying this much for therapy, you know that when you have therapy and you haven't hit your deductible yet, that's what you're going to be charged. You can kind of plan for that. Maybe you have therapy every two or three weeks instead of weekly. There are decisions to be made.

41:38So just something to think about for the long term. Okay.

41:42Sean Pyles:Well, if this were your money, how would each of you handle balancing paying your current healthcare expenses and saving in an HSA? I would do a combined approach.

41:53Elizabeth Ayoola:The first thing I would do is look for ways to lower my current health care expenses. Like Kate said, shopping around can be a headache when no one can tell you how much your care is going to cost, but I would still do it anyway. I would also look back, as Sean said, at how much I had been spending on premiums and put that money away, possibly into a high yield savings account so that I could get interest on that money for as long as it's in the account. And just essentially look for ways to shave my budget so that that money can go into my health care expenses. And also, hopefully their employer is contributing.

42:23Elizabeth Ayoola:But if they weren't, then I might look at not using a high deductible health care plan in the following year because maybe my health care expenses are just too high.

42:31Sean Pyles:Yeah, I think I would do something really similar. I'm going to want to save for retirement healthcare expenses, but also try to reduce my current healthcare if I can. Again, you don't want to avoid treatment because your body needs that, but you can't be breaking your budget every month just going to the doctor. And unfortunately, that's what the system does to us oftentimes. times. Boo. Yeah, we try our best to pay our expenses out of pocket and keep the money in the HSA. But recently we had to take out a big chunk because we were like, wait, we've had all these bills from an out-of-network provider and we need to cover them.

43:02So, you know, it's a decision that we've kind of made as we go. And so far it's worked out. But again, I also get an employer match. That's helpful. It is very helpful.

43:12Sean Pyles:I think what we're underlying here is how personal decision this is and there's no real one right way to do it. Just figure your way through it and you can adjust over time. Yeah. All right. Well, Kate, thank you so much for coming on and talking with us again about another thorny topic. Thank you for having me. I always enjoy it. That's all we have for this episode. Remember, listener, that we are here to answer your money questions, so please send them to us. You can call us or text us on the nerd hotline at 901-730-6373. That's 901-730-NERD. You can also email us at podcast at nerdballout.com or drop us a comment on Spotify or YouTube.

43:46Elizabeth Ayoola:And come and kick it with us next time. We are going to be getting in Sean's business and we're going to be discussing how to use travel points to fund a summer vacation. Make sure you listen in case you want to know where Sean is going for the summer. I don't know if he's telling us, but I'm assuming that he is.

44:01Sean Pyles:Oh yes, I will tell you.

44:03Elizabeth Ayoola:All right. Follow Smart money on your favorite podcast app that includes Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

44:11Sean Pyles:Here's our brief disclaimer. We are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

44:20Elizabeth Ayoola:This episode is produced by Tess Figland, Hilary Georgie helped with editing, Eve Krogman edits our audio and video. And as always, a big thank you to NerdWallet's editors for their help.

44:31Sean Pyles:And with that said, until next time, turn to the nerds.

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45:58Thank you.