How to decide if an HSA is right for you


We’re close to open enrollment season. More and more of us are in a position where employers will offer high-deductible plans, often called HSA-eligible plans in whatever plan documentation your employer is showing you.
HSAs have historically been popular with small business owners. Now larger employers are often offering HSAs as an option for people at all income levels. You as an employee may be tempted to take one because maybe the portion you pay is lower than with other traditional health plans. So if you’re going to pick an HSA for that reason, you need to understand how the game is played.

How does an HSA work and who will it benefit?

HSAs are really neat. They are both a tax-advantaged and tax-free savings account for medical expenses. It is a great deal under the tax code.

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You take on a high-deductible plan that has a deductible of at least $1,300 — more for a family! — and that means that next year you will be responsible for the out of pocket (OOP) for routine stuff. But if something major happens, you will have really good coverage in the event of a major health catastrophe.

But here’s the HSA — or health savings account — part: Because you have this high-deductible plan, you can put money into a savings account that gives you a current tax benefit. That money earns interest tax free either as an investment or as simple savings account and then you spend it for those deductibles and other medical expenses tax free.
It’s really a wonderful thing *except*… if you are in a high-deductible plan and you don’t set up the HSA (health savings account). Then it’s the worst of all worlds; you give up the tax benefit; you have to use after-tax dollars to pay deductibles and medical expenses for routine OOPs; and you have the high deductibles that can eat you up!
So does this make sense if you have the choice to do it? The reality is those best served by this are people who are disciplined about putting money aside in savings and will fund the HSA. And who are really healthy. And who rarely go to the doc. If you meet all those criteria, then it’s not good for you, it’s great for you!
On the other hand, if you live hand to mouth, have no savings or have a significant ongoing illness, don’t do it!
If you are self employed and looking to set up one of these plans up, there are low-cost investment options available through Vanguard. This is the first time in the history of HSAs that there are affordable accounts. So this can be another tax free way to build up long term reserves for the rest of your life.

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For more money-saving advice for your wallet, see our Health section.

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