Earlier this year, one survey found that 56% of Americans would not be able to pay a $1000 emergency bill with their savings. That number is probably higher now. Every year, there is an open enrollment period for Medicare, in which beneficiaries are allowed to review and change their coverage options. For those who are currently working, the open enrollment period has been started by their employers. Similar to Medicare, employers are asking their workers to elect what benefits they would like in the coming year. This provides workers with a chance to consider a much neglected benefit: the health savings account (HSA).
Health insurance Plans
Employers have to choose between low and high-deductible health insurance plans. A high-deductible health plan (HDHP) is one in which an individual has a deductible of at least $1,400, or a family receives a deductible of $2,800. The out-of-pocket expenses incurred under a HDHP cannot be more than $7,050 a year for an individual, or $14,100 for a family. On the other hand, a low-deductible health plan (LDHP) offers deductibles of less than $1,400 a year for a person, or less than $2,800 for a family.
HDHPs are more affordable than LDHPs in terms of premium costs, because the policyholder accepts the risk of paying higher out-of-pocket expenses, i.e. deductibles, in order to receive lower premium costs. For this reason, many people prefer to enroll for LDHPs.
However, HDHPs come with an important benefit that mitigates these risks and helps contributors in the long run: they allow you to contribute to an HSA.
The Benefits of an HSA
Contributing to an HSA reduces the risks of an HDHP. This is because you can save money in an HSA. HSA contributions are tax-free, capital gains are tax-free, and all withdrawals made to fund qualified medical expenses are tax-free. This allows you to save for a medical emergency in the best way possible. For people who do not face many health care expenses, it makes sense to accept an HDHP and pay lower premiums. If you do end up having a medical emergency for which you have to make an out-of-pocket payment, you can tap into your HSA. HSA balances roll over from fiscal year to fiscal year, so you can use the magic of compounding to build up that wealth for any future expenses.
Premier Primary Care Medicine believes that if you get a regular primary care provider, and pay attention to your primary care needs, you will be able to take preventive measures to avoid larger medical emergencies. This will have the effect of reducing your risk of incurring out-of-pocket expenses, and will allow you to let the savings accumulation go on for longer.
HSAs are the most tax-advantaged savings vehicle in the U.S. They beat traditional 401(ks), and Roth IRAs, and just about anything else you can think of.
Once you get to 65, you are allowed to withdraw money from the HSA for whatever reason;, without paying any penalties. If you want to then fund a trip to Mexico, or a boat cruise, you will pay taxes, but that is also true of IRAs and a 401(k) plan.
