A growing trend in both individual and employer sponsored healthcare, using a health savings account (HSA), is a great option for some. HSA accounts are bank accounts that are paired with a high deductible health plan (HDHP), and are primarily used to pay for medical expenses. One of the chief advantages is that this money can be used tax free, which roughly equates to a 25% savings on health care expenses that are paid from the account. Another perk is that once the account reaches a certain amount, that money can be invested in stocks, bonds, and mutual funds.
HSAs are growing in popularity. It’s estimated that HSAs currently total approximately $18 billion, and are expected to double in the next 2 years. They also have several noteworthy advantages:
- Money deposited into an HSA is not lost from one year to the next, but carries over.
- After age 65, money in an HSA can be used for non-healthcare related expenses (although in this case it would be taxed).
- Many employer sponsored HSAs come with some degree of employer contribution.
- The HSA stays with the employee, not the employer.
- The money can be invested once it grows to a certain amount (often $2000).
- Deposits, investments, and payments of medical expenses connected to the HSA are all tax free.
HSAs work well for many people, and have been shown to reduce healthcare costs. Preventative care is covered, but users must pay out of pocket for anything beyond that up to their deductible amount (often $2000-$5000). It’s believed that people make more prudent healthcare decisions when the fee comes out of their own pocket; the policy holder becomes more accountable for their healthcare choices.
It’s important to remember an HSA is not a wise choice for a chronically ill person, as the expenses will likely outweigh the benefits. For more information on HSAs, or advice on the best health insurance policy for your personal situation, please contact Sage Benefit Advisors.