HSAs: Are They Worth Your Time?
HSAs: Are They Worth Your Time?
HSAs, or health savings accounts, are pre-tax savings accounts used to pay for medical costs. These accounts are available to any individual whose insurance deductible exceeds $1,400 or any family with a deductible of $2,800. With healthcare costs constantly rising, high deductible policies are becoming much more common in employer-sponsored healthcare plans. If you are on a high deductible medical insurance plan, an HSA can provide a vehicle for you to save on healthcare costs, potentially lower your tax burden, and serve as an emergency savings fund as well.
HSAs often translate into lower monthly premiums, which can also potentially save you money over the long term. To determine if an HSA might be right for you, consider the following aspects of the account. Speaking with your employer and meeting with an experienced financial planner can also help you make a good choice. Here are five things to consider with HSAs:
1. Look into an HSA if you don’t have any expensive chronic conditions.
An HSA might be right for you if you don’t have chronic conditions that lead to high yearly medical spending. HSAs can be a desirable option for relatively healthy individuals who may only need to visit a doctor a few times a year. If you have a high deductible that you’re unlikely to meet each year, an HSA is likely a good match. If you routinely meet and exceed an insurance policy’s deductible due to higher medical costs, an HSA might not be the right choice for you.
2. An HSA might be right for you if your employer offers a contribution plan.
Many employers now offer an HSA contribution plan for employees who opt in to a high-deductible insurance plan. Put simply, an employer will put aside a predetermined amount into your HSA account each month. Some employers contribute on a sliding scale basis, matching what the employee puts into the account. HSAs can be excellent for employers, because they are often less costly than purchasing a low-deductible plan for that employee.
3. An HSA can provide greater healthcare flexibility.
If you’re someone who values choice, autonomy, and control over your healthcare expenses, an HSA could be a solid match for you. Often, people who prefer HSAs cite the freedom they feel to select their own doctors, advocate for specific treatments, and have greater agency over how their money is spent on healthcare. While an HSA does require more intentionality and planning from the account user, the monetary savings can be significant. If you feel comfortable managing your own finances, an HSA could be the way to go for healthcare costs.
4. HSAs can save you money on taxes.
One of the key benefits of an HSA is the opportunity to set aside money in a pre-tax account. All HSA contributions, both yours and your employer’s, enter the account before taxes. An HSA can also lower your taxable income by diverting it into a savings account. These funds are used to pay copays, deductible costs, and even costs your healthcare plan doesn’t cover, like eye exams, glasses or contacts, orthodontics, and any dental care.
5. An HSA can serve as a secondary savings account.
If your current annual healthcare costs are reasonable, an HSA can serve a secondary purpose: saving for the future. Since HSAs allow medical expenses, this can also be helpful in the event of a sudden injury or illness. Any and all money you’ve saved in an HSA can be used to pay for big ticket healthcare items like surgeries, long-term treatments, or necessary but expensive medications. Your money continues to accrue each year in an HSA, however, since the money is collected pre-tax, it is not subject to income tax, no matter how large it grows. This means that it can be used as a secondary retirement or savings account. In fact, IRAs can be converted into an HSA. Although this type of transfer can only be done once, it allows for even more flexibility when it comes to saving for retirement.
Medical decisions can be complex. Southwestern Investment Group can help advise you on healthcare spending. If you have any questions about how an HSA could fit into your overall financial plan, contact us to meet with a helpful, experienced financial advisor.
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