When your insurance re-enrollment period rolls around at work, you’re faced with the annual challenge of deciding whether to stick with your current coverage or make the switch to a new type of health insurance plan for yourself or the entire family.
Benefits of HSA Coverage
We understand that even thinking about switching your health insurance coverage, even through the same group insurance provider, can be quite the task. Don’t worry, we won’t overwhelm you with information, but can offer some basic information on the benefits of the often-used, yet seldom-understood, HSA plan.
HSA vs PPO/HMO/FSA
The four most common health insurance options listed above include the low-deductible options that most people associate with health insurance: PPO and HMO; also thrown in is the hybrid-style FSA plan, which walks the middle of the road between PPO/HMO and HSA. Okay, that was quite a few words to say not much at all, so here is what you need to know about HSA plans in comparison to the other options listed:
- Much lower premiums
- Often feature far higher deductibles, typically only met during catastrophe or major procedures
- The automatic enrollment of a “Health Savings Account,” which is essentially a bank account (with debit card and/or checks) to be used for any medical expenses
- Contributions in addition to premiums deducted from paychecks to fund the health savings account up to the annual maximum contribution amount
Low & High Usage Benefit
Often, HSA accounts are a no-brainer for healthy individuals of families. Why? Because the amount of money you save on premiums each month can be deposited into your health savings account, where it is yours to keep and spend on health-related services forever. If you rarely visit the doctor under other plans, then you are losing your higher premiums each month for little payoff. Likewise, if you or your family has high medical costs that will exceed the deductible of HSA plans, then the amount you spend up to (and above) the deductible will be largely (or all) tax-free, at which point the high-deductible (often matched with total coverage) will take over, protecting you from the co-pays other plans often ask for.
The real benefit of HSA plans is their triple tax-free benefit. What does this mean? Simply put: The funding of your account is done before taxes are taken out of your paycheck, making it tax free; from there, your money sits in a sort of checking account that will grow with interest 100% tax-free; finally, whenever you choose to spend it, whether now or 50 years from now, on health-related expenses, you’ll do so without a tax penalty of any sort. The money is accumulated, grows, and is used entirely tax-free, and can even be used to pay co-pays or meet deductibles of other plans, such as Medicare Part-B, years and jobs down the road. To put this into perspective: This is essentially a 20 to 25% immediate return-on-investment for most people that can and will continue to grow with interest and can be spent tax-free, making it an even better investment in your future than your 401(k).
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There are many more interesting benefits and interactions with HSA plans, but what you need to know is that if you or your family are light or heavy users of healthcare, then HSA plans are almost always the best financial option, provided you fully (or mostly) fund the plan. Remember, whatever you put in is 100% (and then some) yours to use on health care forever, making it one of the best investments you can possibly make with your hard-earned money.