If you’re fortunate enough to have your health coverage through your employer, the annual open enrollment period offers you a golden opportunity to save money.
But according to money expert Clark Howard, a lot of people don’t take the time to examine their health insurance options carefully during open enrollment. “They just — without really thinking about it — do the form in as few seconds as they can and don’t look at the options available,” he says.
Consider an HSA-Qualified High-Deductible Plan
Choosing the right health care option is so important to prevent leaving a lot of money on the table in the short term and especially the long term.
During open enrollment, you may come across traditional insurance plans and what are called “high-deductible” health plans. With the latter, you typically pay a lower monthly insurance premium, but when it’s time for medical care, you’ll pay more out of pocket before your coverage kicks in.
Because of this, “high deductible plans terrify people,” Clark says.
But there’s a major benefit to some high-deductible health plans that are eligible for an HSA (Health Savings Account).
An HSA allows you to set aside pre-tax money that you can turn around and spend tax-free.
“If you were to switch during this opening enrollment to an HSA-eligible high deductible health plan … then you have access to the greatest tax-free account that we’re offered,” Clark says.
Not every high-deductible health plan is eligible for an HSA, so when you’re looking at your options, make sure that you do your research.
Also, if you’re self-employed and you’re doing an HSA-eligible plan, you’re missing a great opportunity for yourself, Clark says.
Benefits of an HSA
Clark says an HSA could help offset your medical expenses in several ways.
“With the HSA, you get an upfront tax benefit, the money grows in the HSA tax-free, and then you spend it tax-free when you use it for eligible medical expenses,” he says.
And he points out another benefit: “If you’re doing open enrollment with an employer, a lot of times they will then give you money to put into an HSA, which then covers a portion of that deductible you’re taking on going into the high-deductible health plan.”
With an HSA you can also:
- Invest in any number of funds from Fidelity, Vanguard and Schwab
- Build a lump sum through the years that you can spend tax-free
- Reduce your out-of-pocket health expenses
- Save on your taxes
- Rollover the account when you leave your employer
“And so, you’re doing this with pre-tax dollars that grew tax-free that you then spend tax-free. It’s really cool,” Clark says.
Who Should Take This Advice?
To decide which kind of plan to take, you should gauge your family’s medical needs.
“If someone has a chronic medical condition that requires continuous medical care, then it’s a bad idea to go into a high-deductible health plan,” Clark says. “If you have multiple family members who are on a first-name basis with medical providers because you’re at the doctor of some kind all the time, this is a really bad idea for you.”
“On the other hand, if you go very infrequently for medical care and — you’re in really solid health — then you want to look at going into an HSA-eligible high-deductible plan,” he says.
Because the medical industry isn’t terribly transparent about disclosing prices, it’s difficult to comparison shop, Clark says.
That’s why he says enrolling in a high-deductible health plan and subsequently opening a tax-advantaged HSA may make financial sense for you — but only if you and your family members don’t require a lot of medical costs throughout the year.
“I want you to look at going into an HSA-qualified high deductible health plan if your employer offers you that as an option,” Clark says.
No matter what health care plans are available to you, Clark strongly recommends that you thoroughly review your options before making a decision.