October 01, 2015
About half of large employers now offer a high-deductible health insurance plan (HDHP). I know the mere mention of “high deductible” might send your blood pressure skyward, but please listen to me. For many of you, a HDHP may be the smartest health insurance.
There’s no denying that employers like HDHPs as a way to control ever-rising health insurance costs. But that doesn’t make HDHPs bad for you. It’s important to understand that HDHP plans come with a savings account option, called a Health Savings Account (HSA). And it's the HSA part of the plan that is the key to it all.
Here are three reasons you should seriously consider an HDHP with an HSA.
1. A lower premium. If you work for an employer that requires you to pay a part of your monthly health insurance premium, the HDHP will typically have a lower premium than other plans. That makes sense because you’re on the hook for a higher deductible.
2. Employers typically kick in money to your HSA. The HSA is your own personal savings account that can be used to pay for approved medical costs. Everything from co-pays to deductibles (just not premiums.) Many employers make an annual contribution to an employee’s HSA account. If your employer offers this “seed” money, go through this mental exercise: subtract the amount of the seed from the annual deductible for the plan. I bet you will be surprised that your net out of pocket cost for this “high deductible” plan is not so high now.
3. HSA savings are a tax bonanza. In addition to your employer’s “seed” contribution to your HSA, you can also contribute to your HSA savings account. The money you contribute comes straight from your paycheck, and is pre-tax, so it reduces your taxable income for the year. Any money you don’t use in a given year to cover medical costs continues to grow tax-free. (There is no use-it-or-lose-it issue to worry about, as you have with a Flexible Savings Account.) And the biggest tax break comes in retirement. Any money you withdraw from your HSA to cover an approved medical expense will be 100% tax-free. Yep, your HSA is the equivalent of a Roth IRA for health care. That is a seriously great deal.
I highly recommend you give a HDHP with an HSA serious consideration.