Is a Health Plan with an HSA Right for Me?
By: Josh Duncan
Today we discuss what to consider when deciding if a health plan with an HSA is a viable option for you. Watch (or read) to find out more!
(The video is 4 minutes. Full transcript is below.)
Hey friends, the Fearless Advisor here. Today I am going to discuss considerations to determine if a health plan with an HSA (health savings account) is a viable option for you.
Choosing between standard plans & high-deductible plans with an HSA
As the world of health insurance continues to evolve, I am seeing more clients being offered health insurance options that include health savings accounts or HSAs. Some folks have options to choose from standard plans and high deductible plans with an HSA. How do you know if the high deductible plan with the HSA is right for you?
How do I qualify for an HSA?
First, it is important to know the only way to have access to an HSA is through a high deductible health plan. The strategy is to offer lower premiums than standard plans as the employee will cover 100% of the medical costs until the deductible is met. This lowers the cost of insurance for the employer and possibly the employee.
Is an HSA a viable choice for me?
A high deductible plan with an HSA may be a viable choice for people who expect minimal medical expenses over the next year. By minimal, I mean less than the HSA contribution limit. For 2022 the maximum HSA contribution is $3650 for an individual and $7300 for a family. This is only a guideline as everyone’s situation is different.
Are HSA contributions taxed?
The reason I offer the guideline of anticipated medical expenses at the HSA contribution max is because the contributions are made pre-tax. There is no payroll or income tax on the contributions. Therefore, if the money in the HSA is spent on qualified medical expenses, no tax will be owed when withdrawing from the account.
HSAs, investments, and retirement planning
Additionally, there is an option to invest the money in an HSA. Deciding how to invest this money should be governed by an investment policy statement since investments change value. However, it is possible to further grow the value of an HSA through long-term investments. Consult a financial advisor before making investment decisions in your HSA.
With an HSA belonging to the owner of the account, any remaining balance after separating from an employer can continue to be used for medical expenses in the future! This can be a great benefit for retirement planning.
What are the downsides of a high-deductible plan?
The downside to having a high deductible plan with an HSA could be having medical expenses that require the max out of pocket to be met. This is the highest amount a participant will pay out of pocket before the insurance covers 100% of the remaining medical expenses. Therefore, if major medical expenses are expected for the following year, a standard plan may be a better choice for that year. It’s imperative to consider the cost of premiums and expected medical expenses to make this determination.
Additionally, the HSA is funded over time or per pay period. Therefore, an individual planning to contribute $3650 to their HSA next year will not have access to the full amount until all the contributions are made.
If your expected expenses are low, saving pre-tax money for future medical expenses could serve you well down the road.
In summary, when determining if a high deductible health plan with an HSA is good option for your situation, consider your expected medical expenses for the following year along with the premiums. If your expected expenses are low, saving pre-tax money for future medical expenses could serve you well down the road. Finally, if you plan to invest the money within your HSA, consult a financial advisor prior to taking this step.
Questions? We'd be happy to help you out.
If you have questions about high deductible health plans with an HSA, we would love to hear from you. Feel free to schedule a meeting with a member of our team. Thanks for joining us!
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