As employers continue to search for ways to cut health-care costs and, in some cases, to pass more of these costs onto employees, many are offering the option of Health Savings Accounts. The Health Savings Account can seem like a scary choice but after some research, it seemed like the best option for me.
I recently had the need to re-enroll into my company’s medical plan due to a company-defined change in life circumstance. The company offered several options. There was an HMO, a PPO and an HSA. All of these seemed to be decent plans that covered most medical issues like vision, prescriptions, prosthetics, etc. I’m not sure that I could have gone wrong with any plan but the one that I was most curious about was the HSA (Health Savings Account) option.
It seemed complicated at first but basically it boils down to enrolling into a high deductible medical plan and then diverting pre-tax money into a Health Savings Account to cover the deductible and other medical costs. In my family’s case, the deductible is $3,000 and the premiums for that plan are only $103 per month. Once the deductible has been met, the plan will pay 80% of all medical costs including prescriptions and tests. The HSA Plan, like the other plans the company offers, has a $1,000,000 lifetime maximum payout and a $6,000 yearly out-of-pocket maximum.
The premiums for the traditional plan are $431 per month. If I divert the difference ($327 per month) into my Health Savings Account, I’ll accumulate the entire deductible in 10 months. I’ll receive a debit card and a check book to use to pay co-pays and deductible fees. Unlike Flexible Spending Accounts, Health Savings Accounts do not have a use-it-or-lose-it deadline and they can even be rolled over from one employer to another. Once I reach retirement age, the money that’s in the plan can be withdrawn and used as retirement money not just for medical costs.
In addition, my Health Savings Account is an actual bank account that will earn interest. Once the balance is high enough, I can convert the Health Savings Account into a Health Investment Account with several different investment options including bonds and mutual funds.
This is definitely not the right plan for everyone. If I thought that I was going to spend more than $5,500 in medical expenses per year, then I wouldn’t participate in this plan but I’m gambling that I won’t. My gamble could very well pay-off in a savings of a couple of thousand dollars per year and a better retirement.