- What is an HSA?
A Health Savings Account (HSA) is a tax advantaged savings account for medical expenses. You can open one if you have a qualifying high deductible health plan. The HSA is yours forever, whether you leave your job or change insurance plans. Contributions, earnings, and qualified withdrawals are all tax free. You can invest your HSA so that it can grow and compound.
- What is a High Deductible Health Plan?
A High Deductible Health Plan (HDHP) is a category of health insurance plans available from your health insurance provider. They have lower monthly premiums and a higher yearly deductible than regular health insurance plans. When you receive medical care, you pay the provider’s negotiated (lower) rate. These plans also limit your financial liability for medical expenses for the year. All HDHP’s are HSA eligible, so if you are insured by one, you can open an HSA.
- How does an HSA work?
Think of an HSA as a bank account that you can open if you have an HDHP. You can contribute money to this account, tax free. That money can be invested so that it grows and compounds over time, tax free. If you need to pay for a qualified medical expense (QME), you can withdraw money from your HSA, tax free.
- Why would I want an HSA?
There are many benefits of HSA plans compared to regular health insurance. You save money each month because the premiums are lower, and you are still insured against catastrophe. Your HSA savings account is highly tax advantaged. It is a form of saving (similar to an emergency fund) that can be used for medical expenses, emergencies, job loss or retirement. Mostly, it converts part of your monthly health care spending from an expense (never see it again) to an asset (you own it forever). As such, be sure you implement a strategy of proper record keeping; you can download a free Excel file to help you here.
- What are the disadvantages of an HSA?
Inherently, the HDHP may have a higher deductible than other plans, but yearly out-of-pocket (OOP) max figures may be similar. Moreover, your insurance does not pay for things until you reach your yearly deductible. This means that doctors visits, prescriptions, and other procedures may cost more than in other plans. However, you still receive highly preferential pricing by staying in your plan’s network.
- One sentence that contrasts regular health insurance with HSA plans:
You can choose to spend your health care dollars on 1) high monthly premiums or 2) your HSA account and – if needed – health care that you actually use.