FIRST DOLLAR's EXPERT GUIDE

Planning For A Baby? Here’s How An HSA Can Help You Through It All

FAMILY PLANNING HANDBOOK

Getting Started

You’re probably thinking about having a child or already have one on the way. Congrats!

Last time we checked, bringing a whole life into this world can get expensive. But that’s okay! There are plenty of ways to navigate the costs of family planning and everything that comes along with it. We’re here to guide you through different stages of planning with an emphasis on our favorite healthcare companion: The health savings account (or HSA.)

Health Insurance 101


  • A health insurance premium is the monthly fee you pay your insurance provider for coverage
  • The deductible is the amount you pay for services before your health insurance kicks in. (For example, if your deductible is $2,000, you’ll need to reach that amount out of pocket before your insurance takes over.)
  • A copay is the fixed amount paid by a patient during an “in-network” (different from, duh, “out-of-network”) doctor’s visit.
  • Coinsurance: is the percentage of costs (say, 10% or 20%) paid by a patient for in-network services before their health insurance takes over the rest of the payment if the procedure is covered (this is often the case with major things like, say, childbirth!).
  • And out-of-pocket expenses are medical care costs not covered by your insurance that you need to pay in full yourself. Everyone’s favorite, right? (Not.)
  • A Health Savings Account (the reason you’re here) is a triple-tax advantaged savings vehicle to support a high-deductible health plan. It belongs to YOU and no one else.
  • So that means a high-deductible health plan (HDHP) is an insurance plan that has low monthly premiums and a high out-of-pocket costs (hence the name) before insurance steps in.

let's go!

For starters, what's the cost of having a child?

The cost of having a child in the U.S. can be startling, nothing to sugar coat. With insurance, once could expect to pay around $4,500 for labor and delivery, according to a study by Health Affairs. Without insurance, that number can be upwards of $40,000. That also doesn't take into account all of the care needed prior to a child's birth and what to expect after.

According to the authors of the above study, one of the reasons costs of childbirth has risen in recent years is because the number of people on high deductible health plans (HDHP) has risen. Meaning, more people are choosing HDHPs due to low monthly costs and then having to spend more out of pocket before insurance steps in. however, one great way to combat those out of pocket costs is by utilizing a health savings account (HSA).

Here’s a breakdown of some estimated costs of having a kiddo:
  • Prenatal visits (average of 8) - $108 per visit 
  • Diagnostic x-rays and laboratory charges - $40 each 
  • Ultrasounds - $159 each 
  • Delivery (including use of delivery room, hospital bed and board, physician services, and anesthesia) - $6,034 vaginal, $8,725 cesarean 
  • Routine newborn circumcision - $200

We know your burning question is all about if a PPO or HDHP is the better option, and we promise we’ll get there. But before we get there, we’re setting up a strategic timeline for you:

  1. Planning for a baby
  2. Having a baby
  3. What’s after having a baby
Years 1-5

The planning starts here!

All experts can agree on one thing (and one thing only): It’s never too early to start saving. No matter what plans you do (or don’t) have, it’s never ever a bad idea to have savings set aside because you really have no idea what could happen. Now, you probably have some idea of when you’d like to start a family. And that’s all you really need to start making a plan for savings so that when the time comes, that’s less anxiety for you during a time where added stress is the last thing you need. 

So, no matter what stage of life you might be in, if you know that you want to bring a life into this world eventually, there’s planning to do.

In the years leading up to starting a family, here are some things to consider:
  • Switch to a high-deductible health plan. This way, you can save on monthly premiums and put tax-free money aside in your health savings account.
  • Set a monthly savings goal. Do your best to max out HSA contributions. Think about what you might be spending on monthly premiums and save that instead. Pro tip: set up automatic contributions in your bank account so you never have to worry about doing it yourself!
  • Hit this goal every year. The IRS recently announced 2021 contribution limits, which are $3,600 for an individual and $7,200 for a family. So if you maxed these out for the 5 years leading up to the time you decide to have a kid. You’ll have $18,000 individually or $36,000 as a family! 
  • Consider investing. If you’re one to err on the risky side of life, you can even consider investing your HSA dollars while you wait to have a child. This way, you come out with even more savings when it’s time. Plus, all of your gains come out pre-tax!

Some items you might need along the way are HSA-eligible purchases, too:
  • Condoms
  • Fertility trackers
  • Ovulation tests
  • Pregnancy tests
  • Fertility treatments
  • Some OTC medications
  • Prescriptions related to family planning
  • Prenatal vitamins

Also, there’s lots of good news for folks who need to take an alternative route to parenthood. An HSA is a great companion for family planning that involves in-vitro fertilization (IVF) or surrogacy.
In vitro fertilization
  • IVF can cost upwards of $20,000 per cycle, and most folks using IVF will go through two cycles on average to find success. 
  • Things like fertility treatments, egg and sperm retrieval/storage, and more are all qualified medical expenses that can be covered with your HSA dollars. 
  • All individual and group insurance policies are required to cover most maternity costs including IVF, but depending on your plan at the time, an HSA will help cover out-of-pocket expenses.
  • We always recommend double and triple-checking with your insurance company to go over what they cover when it comes to IVF.


Surrogacy 
  • While costs related to surrogacy like compensation, insurance premiums, prescriptions, and other medical expenses on behalf of the surrogate are not eligible for HSA funds, there are surrogacy-specific insurance plans you can look into.
  • The above insurance tends to be on the expensive end, but covers most medical expenses your surrogate will endure.
  • On the other end, any costs related to you such as egg retrieval, sperm donation, embryo creation, and personal prescription meds can be covered by your HSA dollars.

No matter which path to parenthood you take, it’s expensive. But a tool like your HSA can combat those costs and support you through it all. It just takes the right amount of planning, goal-setting, and determination to reach your dreams of having a family!

"Goal setting is crucial! If you don't plan out your goals you will never reach them. You are 1.5x more likely to achieve a goal if you write it out. Create a plan creates a clear picture of how to get there and can give you a boost of motivation to get going! Otherwise you will still be "wishing" for it year after year!"
– Ashley Patrick
Budgets Made Easy
@budgetsmadeeasy on IG
Years 5-6

Having a baby!

So this is where the strategizing really comes into play. You have options like we discussed in the beginning of this article.

Keep your HDHP and HSA and use your savings to cover out-of-pocket costs? Sure. Switch to a PPO for the lower premiums but still use your HSA to pay for medical expenses? Also possible. Either way, each option offers the chance to meet your out-of-pocket maximum, meaning that insurance will step in and cover 100% of the costs after you reach that maximum for the year. It’s up to you to plan and strategize for that based on what health insurance option you ultimately choose.

Spoiler alert: this is the section in which we will answer your HDHP vs. PPO questions!

Option 1: Keep your HDHP + HSA

Do the math and understand the whole picture when it comes to maternity costs. You could be surprised by the "non-traditional" route like this one.

What this means

You will have a larger deductible and out-of-pocket maximum to reach before insurance steps in. But, because you’ve hit your savings goals, everything can be covered by pre-tax dollars from your HSA.

Your best action plan

Talk to your providers and doctors to get a solid grasp on costs you’ll be taking on and plan around those. Prepare to take on out-of-pocket costs right off the bat so that insurance can step in ASAP. Use your HSA to reach that out-of-pocket max!

Other ways to optimize

Save as many receipts along the way as you can and submit all of them to be covered by your HSA; you’ll probably be surprised at what your HSA will cover.

“Having a baby is going to max out your medical coverage, period.  And depending on when you get pregnant, you may be reaching the out-of-pocket max for two different plan years (i.e. 2020 and 2021). It's important to factor in these expenses as early as possible so they don't throw all your other goals off track.”
– Raven Williams
Practical Money Talk
@theripplerationale on IG

Option 2: Switch to a PPO

Sure, the total out of pocket costs is lower. But look at the difference in the total yearly spend when you factor in the high premiums. Plus, no tax advantages here.

What this means

You’ll spend more monthly, but you will use all of the care you’re paying for. You will pay less out of pocket and meet deductibles quickly so that insurance will step in and take care of the costs.

Your best action plan

If you’re set on using a PPO for labor and delivery, seriously consider having an HDHP with an HSA in the years leading up. Just because you switch to a PPO, doesn’t mean your HSA is invalidated. You can still use these funds on qualified medical expenses, but you can no longer contribute money. Use the HSA dollars you’ve saved to meet deductibles and maximums and use them for other costs that insurance may not cover!

Other ways to optimize

If you’re cutting down out-of-pocket costs by switching to a PPO, you’ll have leftover HSA savings that can be used on expenses for the new baby like baby monitors, breast pumps, and more.

At a glance, it would appear the PPO has the lower out-of-pocket costs for strictly labor and delivery charges...

...which is correct. But when you add ALL of the costs together and don’t have an HSA to support you, the HDHP with an HSA looks pretty dang good.

Oftentimes, an HDHP might even have a lower out-of-pocket maximum! Think about it like this: the money you could be spending on monthly premiums could go straight into an HSA instead. In the end, it really is all up to you and what you are willing to plan and pay for. But with the right amount of strategy and planning, the not-so-traditional route of an HDHP with an HSA could be the route that leaves more money in your pocket in the long run.

Additionally, things you will need the year you have a child can be taken care of by HSA dollars, regardless of your current plan. These include and are not limited to:

  • Pregnancy tests
  • Prenatal vitamins
  • Lab work
  • Doctor’s visits
  • Ultrasounds
  • Birthing classes
  • Doulas
  • And more
"Ironically, the reason I chose an HDHP + HSA initially was because I very rarely had medical expenses! As someone who didn’t have any medical necessities, paying less for our premium with a HDHP made the most sense. However, when we found out we were expecting, I was still glad we had the HSA.

Long term, having access to all the tax benefits an HSA provides is really important to us. Plus, I enjoy lower premiums for years we don’t have many medical expenses. We still get to have our deductible saved as backup while also having the ability to invest the rest which is huge."
Brittany Polanco
Millennial Mom + Money Expert
@britpolanco on IG
Year 7 and beyond

Raising a kid!

CONGRATS! You did the dang thing and brought a whole life (maybe two or three, who knows?!) into this world. So what does that mean for your health insurance? Well, probably more money. And probably more doctors appointments at least in the new baby’s first year. The first year with a new child typically costs parents somewhere around $1,500 out of pocket. Many of those costs (baby monitors, wellness checks, check-ups for mom) could be covered by your saved HSA dollars whether you’re on an HDHP or PPO.

"A big way [my HSA] helped me (unexpectedly and probably unconventionally) was to prepare for a 40% loss in income during maternity leave. Since we had been contributing  pre-tax to our HSA before the birth our take home pay was lower. That made us better prepared for the income loss. We were able to live on less while contributing to the HSA, so we were prepared to live on less during maternity leave.
– Brittany Polanco
Millennial Mom and Money Expert
@britpolanco on IG
 In your first 30 days as a new parent, you should:
  • Add your baby to your policy. Under most insurance plans, you have a certain period of time (often 30 days) to add your new baby to your insurance. We know there’s probably a lot on your plate with a newborn, so we’d recommend setting a calendar reminder to take care of this ASAP!
  • Revisit your insurance plan. Because having a child qualifies for special enrollment, you can change your healthcare plan after giving birth to suit your new needs and goals. Premiums often go up with a baby on board, so it might be worth reverting back to an HDHP with an HSA if you chose to switch prior to having birth. If you foresee extensive medical needs, a PPO would fit your needs better.

In the first year as a new parent:
  • Use your HSA dollars for postnatal care, mother and baby check-ups, select baby supplies, and more. Whether or not you’re still on an HDHP with an HSA, you can use the HSA dollars you saved on qualified medical expenses.
  • Set savings goals again. New baby = more costs. But that shouldn’t stop you from saving for the future. Whether or not you choose to have an HSA the first year with your new baby, we always recommend to save what you can for a multitude of reasons; you really never know what’s going to happen, as we’ve learned this year.

For the next 18 years and beyond:
  • Prepare your finances. Not to scare you, but the average cost of raising a child until they are 18 in the U.S. is now upwards of $250,000. This doesn’t take into account college, housing, health insurance beyond 18, and more. So just accept that this is what you’re getting into and your kid is 10000000% worth every penny!
  • Invest in your future! We can’t stress this one enough. It could be very worthwhile to look into an HDHP + HSA if you switched to a PPO at some point in the family planning stages. Not only does it save you money on a monthly basis, but the money you save can be invested, and therefore grow so that there’s even more money in the bank for your future. When partnered with the normal 401(k) plan, you could end up with two powerful retirement funds.

THE KEY TO SUCCESS

Know your needs and set your goals. With the right amount of discipline and planning, you can come out with more money in your pocket to spend on your new family. If this sounds like the right path for you, First Dollar can help guide you through it all. Sign up today!

A better HSA in every way.