Health Savings Account
If you’re generally healthy, don’t go to the doctor very often, have a fairly good idea of how much you spend yearly on health care expenses and want to save some money, then an HDHP with an HSA could be a good fit. But let’s dig deeper into the benefits and drawbacks of this option so you can determine if it’s really the better plan for you.
How is an HDHP with an HSA different from a traditional health plan?
Traditional health plans—Typically have higher monthly premiums, a smaller deductible, and fixed copays and coinsurance. This means that you’ll pay less out of your pocket due to the lower deductible and copay, but you’ll pay more each month for your premium.
HDHPs—Generally have lower monthly premiums and a higher deductible to meet. While you’ll pay more out of pocket for medical expenses until you meet that deductible, you can use your HSA to cover those costs. You’ll also be saving each month by paying less for your premium.
Benefits of an HSA
Tax advantages—What’s especially advantageous about HSAs are the triple tax advantages. You put money into your HSA account tax-free (usually deducted right from your paycheck), your account accrues interest tax-free and you can withdraw your funds tax-free to use for qualified medical expenses.
Savings vehicle—Another benefit is that unspent dollars are rolled over each year, meaning that you won’t lose the money you put in even if you don’t use it during that year. This allows you to continue to build savings that you may need for an unexpected injury or illness, or an expensive medical need.
Drawbacks of an HSA
Unpredictability—Illnesses and injuries are often unpredictable, so it can be tough to accurately budget for your yearly medical expenses.
Pricing transparency—It can be challenging to find accurate information out there about health care costs—again, another barrier to estimating your expenses with any degree of accuracy. If you didn’t budget enough for a given year, a large, unforeseen medical expense could lead to significant costs.
Higher out-of-pocket costs—Another drawback is that while an HSA is such a valuable savings opportunity, sometimes people forgo the care they need to avoid spending money from their account.
So, is an HDHP with an HSA right for you?
The decision is up to you. If you have a reasonable idea of your annual health care expenses, then you could save a lot of money from the lower premiums and valuable tax-advantaged account with the HSA plan. For example, even someone with a chronic condition could take advantage of an HSA if they have an idea of their annual expenses and budget enough money to cover their care.
But, if you’re older, more prone to illness or unexpected medical conditions, or don’t want the possible risk of unexpected out-of-pocket expenses, you may want to stick with a traditional plan. You’ll pay more in monthly premiums, but you’ll have a lower deductible.
To help you further determine if an HSA is right for you, contact your HR representative or plan administrator at your company.
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