Health insurance has changed quite a bit over the last few years, and you may have noticed a greater push for high-deductible plans. These plans are usually coupled with a Health Savings Account.
Before you make any decisions about whether or not this type of plan will work for you, it helps to know what a Health Savings account is and why these high-deductible plans were created.
Health Savings Accounts (HSAs)
HSAs are personal savings accounts that are used only to pay for medical expenses. As long as the money is solely used for health care, it’s not taxed.
Unlike Flexible Spending Accounts (FSAs), you control your HSA. It’s not tied to your employer or your insurance. Funds can also roll over year-to-year, so you don’t have to worry about the “use it or lose it” problem FSAs have.
Rising healthcare costs have created a need for high-deductible plans, especially among young , healthy individuals.
Studies have shown that people on these plans are more active and engaged with managing their health. They’ll shop around for services and take advantage of free preventative care coverage. They’ll also choose an urgent care clinic over an ER for acute illnesses and injuries that are not emergencies.
This shift will hopefully help healthcare costs in the long run. Mindful spenders will create a more competitive market that should eventually help drive prices down.
Pros and Cons
- You can save a lot of money from being deducted from your paycheck with HSA plans. That money can go straight to your HSA, which will be more beneficial to you.
- Out of pocket costs can be daunting if you have a medical issue pop up. Unfortunately, medical issues are not something you see coming. However, you will find many providers willing to work out a financial plan with you if you’re having trouble.
- You may be able to set up automatic deductions from your payroll to your HSA so you don’t have to worry about having the discipline to save.
- HSA money can be saved for retirement. Medicare does not cover all expenses!
- You will need to pay a hefty tax penalty if you use your HSA money on non-medical expenses.
- You can not contribute to an HSA after age 65.
You’ll need to make a decision based on what makes the most sense for you and your family, but now you have the knowledge to make a more informed decision.