Hey Roger, it’s open enrollment time.
What do you think you’re going to choose? I’m going to go with the health plan with the massive deductible.
But hey, it comes with that savings account, an HSA is it?
Ok, gotta get back to work, later!
Isn’t it just the highlight of the year, getting to choose a new healthcare option at work?
Well for Roger, unlike his work buddy, he’s in a predicament and doesn’t know how he wants to approach his healthcare selections this year.
He has the option to go with what he has been using, but yikes, the price increased 20% OR he can go with a more reasonable monthly premium with a really high deductible. What will Roger do?
What would you do?
Well, it depends on your circumstances. Let’s review a little further…
Are you currently looking for an option to help fund your health expenses?
One of the avenues growing in popularity is the use of a Health Savings Account (HSA) used in conjunction with a High-deductible Health Plan (HDHP).
This is due to an increasing number of employers making the switch to include the HDHP’s in their offerings.
This provides the employee an affordable health option in a market with rising premium costs.
Let’s define each of the key terms.
What is a Health Savings Account – HSA?
It is a tax-advantaged medical savings account that is provided to help supplement the payment of health expenses that HDHP’s may not cover.
What is a High-deductible Health Plan – HDHP?
You guessed it! It’s a health plan that has a high deductible (the out-of-pocket payment before the health insurance folks will pay anything), alternatively, the monthly health premium is lower.
Please note that in order to qualify for the HDHP + HSA combo, the HDHP must meet the minimum and maximum annual deductible limit and there are out-of-pocket limitations. In other words, not all HDHP’s qualify to be used with a HSA. It is advisable to check with your healthcare provider.
–minimum deductible: $1,350 – individual, $2,700 – family
–maximum deductible: $6,650 – individual, $13,300 – family
In order to determine if the use of an HSA account is the best option, first, you need to determine if the underlying health plan would coincide with your current health needs.
Is the High-Deductible Health Plan Right For YOU?
As mentioned earlier, the necessary component to utilizing an HSA is enrollment in an HDHP.
This type of plan is a good option for an individual that makes infrequent visits to the doctor. With an HDHP, though the monthly premium costs are lower, the plan deductible is higher than normal.
This would work great for Roger since he doesn’t visit the doctor often, if at all.
According to IRS.gov for the tax year 2018, the maximum deductible should be no more than $6,650 for individuals and $13,300 for families for in-network services.
Due to the inherently higher deductibles for an HDHP, this could prove to be costly for frequent visits to the doctor. In which case, this would diminish the use of the HSA as a potential savings tool for healthcare.
In Roger’s case, choosing to be on a high-deductible health plan is a no-brainer because he rarely goes to the doctor.
At this time, he is in relatively good health. He is blessed to say that, given that both his parents have had their fair share of health problems.
He took the cue early on that he would have to take good care of himself due to certain predispositions.
Ultimately, the HSA and the HDHP combo yields two immediate benefits for Roger.
» The monthly costs are lower than other health plans. He can use the monthly savings to help fund his HSA.
» An HSA provides an additional investment vehicle in order to help fund his future health and/or retirement expenses.
Health Savings Account Advantages
Here are 7 great advantages of an HSA to consider:
#1 – The balance at the end of the year rolls over (and over and over…). Unlike a Flexible Spending Account (FSA), an HSA will not “expire” at the end of the year.
#2 – The contributed funds can be invested. This is HUGE. Some plan providers have restrictions as to how much needs to be left in cash reserves, but once that is fulfilled, you have the ability to invest as much as you want – growing the balance for the long-run!
#3 – There are tax advantages in 3 forms.
→ Contributions are tax-deductible – NICE!
→ The growth is tax-deferred – SWEET!
→ Withdrawals for qualified medical expenses are tax-exempt – AWESOME!
#4 – The balance can be used for qualified medical expenses (for life). If you don’t plan on using the HSA right away for reimbursements, but would rather invest the money instead – keep all the medical/dental/vision receipts. This way you can get reimbursed at a later point in time.
#5 – If you leave the company, you can take your account with you. Sayonara “company”, but I’m keeping my HSA. It works the same as a 401k. You keep the money that is vested. The HSA money is 100% vested.
#6 – Upon death, the account can be transferred to a beneficiary for them to use for qualified medical expenses.
#7 – Employers can contribute to your HSA if they choose. Free money? Yes, please! Many employers will do this as part of a benefit option. Read further down to learn how this affects you!
All of these benefits are A++. If you haven’t garnered it yet, the HSA is a powerful account.
The addition of the HSA as a savings vehicle for Roger’s healthcare currently and into retirement is a great bonus.
He can choose to pay qualified medical expenses out-of-pocket now and have the balance grow into retirement.
Roger is really excited that he has the option to invest his HSA money versus just letting it sit in an account waiting to be used!
The Allowable Contribution Limits
Please note that there are IRS limits for individuals and families.
For 2018, the allowable contributions for individuals and families are $3,450 and $6,900, respectively.
Each year the contributions may change slightly, so it is advisable to check your resources prior to making contributions for the year.
Keep in mind, that if your employer is contributing to your HSA, then it will count towards your annual limit.
For instance, let’s say ABC Corporation contributes $1,000 to your HSA in 2018.
As an individual on a high-deductible health plan, you will only be able to make additional contributions of $2,450 to the plan for the calendar year 2018, for a total contribution of $3,450.
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Consider Your Options
The combination of the HDHP and HSA are right for Roger, but please understand that it may not be the best option for you.
Consult with your health insurance provider for more details. As with anything related to your well-being, consider your options.
I always look at it like this – if the costs outweigh the benefits, which in this case the HDHP outweigh the benefits of the HSA, then there is no point in pursuing it.
It would be more beneficial to stick with a lower deductible health plan and have the insurance company help pay the medical expenses.
You don’t want to get stuck paying ALL the expenses yourself. Alternatively, if you don’t need excess medical coverage, then an HDHP + HSA combo is a great option. Step back and take a look at the bigger picture before making a decision!
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*As with all financial and investment decisions, consult a professional. Read disclaimer here.
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Thank you for reading! Are you currently utilizing an HSA with your high-deductible plan?