Health Savings Accounts (HSAs) are growing in popularity and usage at a rapid pace since they first became available on January 1, 2004. With health insurance premiums going up year after year, the benefits of combining a High Deductible Health Plan (HDHP) with an HSA is becoming more attractive. As of June 30, 2016, over 18 million people have opened HSAs, which is up 25% from a year earlier. And according to an analysis done by Fidelity Investments of the over 500,000 HSA accounts they administer, 24% of folks didn’t touch any money in their accounts!
What’s so special about these accounts and what’s the strategy behind using them in conjunction with receiving health care services for you and your family? Well I’m glad you asked. I have been using an HSA alongside my HDHP since 2010 and my only regret is I didn’t start it sooner. Here are the top 5 reasons why, starting with number 5:
5. Tax write off and tax-free withdrawal for qualified expenses
The money contributed to your HSA is an allowable deduction when you do your taxes each year. While the money is in the account, the interest it earns is not taxed. When you draw the money out to pay for your qualified expenses, it’s not taxed. TRIPLE TAX SAVINGS!
4. Lower health insurance premiums
HSA qualified health insurance plans usually have a lower monthly premium than typical copay and non-HSA qualified plans. The reason is that the insurance company isn’t paying for any medical services until the owner of the policy has paid a certain amount of medical expenses themselves first (in the form of a deductible). Also, because of the Affordable Care Act, you still get your annual preventive exams paid for by the plan at no cost to you.
3. No use it or lose it rule like with a Flexible Spending Account (FSA)
In other words, the money you deposit (or your employer deposits) into your HSA is yours to keep without a requirement to spend down the funds in any given year. It can continue to grow and grow.
You can add to it, within the IRS requirements of course ($3,400 for a self-only plan or $6,750 if you have dependents on your plan and an additional $1,000 if you are 55 or older), and if you don’t have any qualified expenses to pay for you can just “let it ride” and keep adding to it.
I’ll explain in another post why this strategy is being used by a lot of people and why you should consider it too.
2. Can be used for dental and vision as well as medical
You can use the dollars to pay for dental services, glasses, contacts, contact solution, chiropractic care, and the list goes on and on. You could be paying for these services now on an after-tax basis so it’s clearly a better deal to let the IRS help shave off some of these costs by using the before tax dollars available from your HSA.
1. It gives you more control over the services you receive
Most of the HSA compatible health plans are on a PPO (Preferred Provider Organization) platform. This allows you to seek services without having to get a referral from a primary care physician or medical group.
Also you are able to shop for your services and choose a lower cost provider if you want, rather than being told who you have to use for your medical services. When this kind of consumerism is in action, it almost always results in more satisfaction, higher quality services, and lower costs.
There are a multitude of reasons to have an HSA. These are just five of my favorite. There are also multiple strategies to maximize your use of your HSA. I will continue to discuss them in future posts. In the meantime, feel free to contact me anytime to talk more detail at email@example.com or (888) 884-4574.